No longer safe as houses?

More pain ahead for the property market

Latest figures released by the Bank of England have shown that mortgage approvals in April dropped to their lowest level since records began in 1993. The reduction in lending is likely to cause more problems in the housing market, with Morgan Stanley predicting that house prices will fall 10% by the end of 2012.

Not only is this bad news for homeowners, but it may also start to cause further problems in the beleagured banking sector. Many banks are still massively exposed to moves in house prices, due to mortgage deals arranged during the last decade. In particular, The Telegraph reported that Lloyds TSB may be hard hit, with up to one quarter of its mortgage customers in negative equity by 2012. Analysts suggested that this could mean that mortgages totalling up to £90 billion were potentially affected, at this one bank alone.

However, as always, statistics can tell a thousand different stories and the Council of Mortgage Lenders issued a prediction that 'net' mortgage lending (stripping out redemptions and repayments) would actually rise during 2011 to £9 billion, up from £8 billion last year. This may sound like a lot of money, certainly enough to keep the current Mrs Moorhead in the manner to which she would like to become accustomed. But in 2006, the last year that mortgage lending rose, the total lending was £110 billion. That's right, £110 billion. So we are currently running at about 8.2% of 2006 mortgage lending levels. No wonder the housing market is in the doldrums, but also no wonder that so many homeowners, and banks, found themselves in seriously deep water.

As ever, when money matters go wrong, we can help. My number is 01709 331300.

Net property borrowing falls further

Homeowners' equity increases (but only because they are paying down debt)

UK homeowners repaid a record £7 billion in the final quarter of 2010 according to figures released today by the Bank of England. This is the eleventh quarter in a row that net property debts have decreased and the highest net repayment since records began in 1970.

It is likely that the reduction in debt is a result of more stringent lending policies by lenders who have been shaken by the banking meltdown in recent years. In addition a number of secured lenders have pulled out of the market all together as house prices  have plummeted, wiping out equity a d leaving many homeowners (and lenders) highly geared and dangerously exposed.
   
It seems clear that lax lending policies had a direct and devastating impact on the financial markets and the previous unsustainably high levels of lending have now been scaled back. But it also appears that consumers are not in a position to increase borrowing in order to take advantage of the lowest base rates in 315 years, which is an ominous development for high street spending and house prices in the coming months.

The challenge for banks is to ensure that the pendulum does not swing too far the other way, denying sensible levels of credit to responsible borrowers. A competitive market for sensible levels of credit is essential in a fully functioning free market economy, fostering enterprise and wealth creation. But anecdotal evidence suggests that the over-correction is in full swing.