Mortgage Lending Slump Continues Throughout July
The slump in mortgage lending continued throughout July, according to the latest figures from the Council of Mortgage Lenders (CML).
Total lending stood at £24.8bn, up slightly by 5% from June, but still 27% lower than the same period last year.
Lending to homeowners has slumped dramatically in 2008, because the credit crunch has dried up the supply of funds available to banks.
House sales have dropped by 50% this year and will probably fall further.
“While there was a small month-on-month increase in activity, it represented a notable decline from a year ago,” said Bob Pannell of the CML.
“This continues the weaker picture seen in June and points towards the more subdued levels of lending we are likely to see in the second half of 2008,” he added.
The bulk of mortgage lending this year has been to people who are not, in fact, moving house.
Previous figures from the CML have shown that so far in 2008, only 29% of mortgage lending has been to house buyers.
The rest has been to people staying put but moving to new mortgage deals, such as former customers of the Northern Rock, or to people borrowing extra sums against the value of their homes. A marked contrast to the situation year ago.
In the course of 2007, lending to home buyers was a much higher proportion of total mortgage lending, at 43%.
The slump in home buying in the past 12 months is highlighted by the fact that in June this year, loans for home buyers were less than half the number seen in June 2007.
“Even though the base rate has come down by 0.75% since August 2007, those without higher deposits have seen little benefit with many first time buyers effectively shut out of the market,” said Oliver Gilmartin of the Royal Institution of Chartered Surveyors (Rics).
“Despite the prospect of further interest rate cuts as the economy slows sharply into 2009, tighter lending standards look set to stay,” he warned.
Lenders are continuing to shave the interest rates on their mortgage deals, as the cost of funding has come down in the past month or so.
“In the past few weeks, some lenders have returned to the market,” said Andrew Montlake of mortgage brokers Cobalt Capital.
“The Abbey, Nationwide and HBOS have been having a bit of a battle to get more business in,” he added.
Tomorrow the Abbey is cutting the rates it charges on its two-, three- and five-year mortgage deals, for borrowers who can put down a 25% or 30% deposit.
But these are aimed at customers of other lenders who are seeking a better deal, not at people who are moving house or trying to buy a home for the first time.
“They only have two fixed-rate deals for people with deposits of less than 25%,” said Aaron Strutt of mortgage brokers Chase de Vere.
“Their most competitive deals are for people with at least 25% to put down,” he added.
FSA Demands Tougher Mortgage Fraud Action
The (FSA) Financial Services Authority has told lenders to tighten up their defences against mortgage fraud.
This year alone it has banned or fined 17 mortgage brokers who have been implicated in making actual or potentially fraudulent applications.
The regulator says it is monitoring 200 more broking firms to ensure they have sufficient checks in place.
And it also warns that certain lenders may not be guarding themselves against fraud with sufficient diligence.
“The FSA continues to take very seriously the question of whether lenders’ systems and controls for dealing with mortgage fraud are proportionate to the risk,” said Philip Robinson, director of the FSA’s financial crime and intelligence division.
“We are likely to take particular note of cases where weaknesses in due diligence and customer checks - or in outsourced relationships with third parties - may have contributed to a heightened mortgage fraud risk,” he warned.
Easy Credit
The FSA’s call for tougher defences against fraud is targeted at the whole mortgage industry, including the British Bankers’ Association (BBA) and the Council of Mortgage Lenders (CML).
The regulator says the problem became widespread in recent years because of “easy credit conditions and a cut down application processes.”
The FSA is currently liaising with many police forces around the country in its efforts to stop criminals defrauding lenders by making bogus applications for home loans.
The CML’s director general, Michael Coogan, welcomed the tougher stance.
“People may not think of lenders as victims of crime, but unless fraudsters are tackled then honest customers are the ones who end up paying more,” he said.
“We expect that even more lenders will now participate in the voluntary initiative designed to identify and investigate broker fraud,” he added.
Tip Offs Wanted
Since 2006 the FSA has been asking lenders to report suspect mortgage brokers to it.
It has received more than 300 tip offs so far, but is disappointed that only 35 out of the UK’s 150 lenders have made any reports to the authorities.
It now expects the rest to fall into line.
Despite the downturn in the property market in the past year, and the slump in mortgage lending caused by the credit crunch, the FSA warned that the problem of mortgage fraud could revive along with activity in the market.
And it says it may require senior staff at mortgage brokers to become individually approved by the regulator, something which is not necessary under current regulations.
