Mortgage lending likely to stabilise in Q4 at an exceptionally low level

There has been a further sharp downturn in mortgage lending. This reflects pressures on availability of funds, as a result of adverse events in the UK financial system, and more significantly, the extensive problems in the USA. The impact of the international credit crunch has been far longer and deeper than expected, as a result of the severe pressures on some of the largest US financial institutions. The scale of the international credit crunch has led to a sharp downturn in net lending to a level close to zero in August. Gross approvals in August fell by £1billion to £13.6billion (all lending data seasonally adjusted: source Bank of England). We believe that mortgage lending will stabilise around these levels in the coming months. A major upturn in mortgage lending is unlikely until the Spring, when a degree of confidence is expected to return to international financial markets. Recent events will have long term implications. Mortgage lenders appetite for risk will be somewhat lower than in the past. On a more positive note, despite large scale consolidation, we anticipate that there will be strong competition for mortgage business in the second half of next year.

(This article represents our view only and no action should be taken without expert advice. Please call us if advice is required).