CML news & views

Data on lending to individuals published today by the Bank of England confirms that housing market activity is picking up only very gradually. We expect this slow pick-up to continue over the rest of the year, with interest rates remaining low and the economy gaining a little momentum. But unemployment and fiscal tightening will also bear down on the economy, and mortgage availability will continue to be constrained by the funding shortage and by the anticipated withdrawal of Bank and government support schemes for firms.

House purchase activity edged higher in April, the Bank’s data showed. The seasonally adjusted total of 49,900 house purchase loans reported in the month was 2% higher than in March and 10% up on April 2009. But it remains lower than the average of 56,000 seen in the last six months of last year, in the lead-up to the end of the stamp duty holiday. The effect of the holiday boosted activity in the final months of 2009 and reinforced the quiet start to this year.

Meanwhile, remortgaging activity remains low. Although lower interest rates are helping to keep mortgage arrears in check, they are removing the incentive to remortgage, and this is bearing down on lending figures. The seasonally adjusted April total of 26,300 loans for remortgaging was 5% lower than last month and 10% down on a year ago. 

Net lending also remains at a very low level, totalling just £490 million in the month. Especially low levels of net lending in March and April look to have been driven by a rise in capital payments. Despite comment to the contrary in some sections of the press, there is no evidence that borrowers in aggregate paid down more mortgage debt last year. But there are tentative signs that in March and April capital repayments did pick up a little.

Now that we have seen Bank data for the first four months of the year, it is becoming clearer that the risks associated with our lending forecast for 2010 are now on the downside. We have predicted gross lending of £150 billion this year, and net lending of £15 billion. But with data now available for a third of the year, we are tracking below these levels.

The data probably reflects both a continuing shortage of mortgage funding and weak consumer confidence, which is affecting demand. Although we accept the government has limited room for manoeuvre, we urge it to use the forthcoming Budget to prioritise support for home-owners.

Meanwhile, we will keep our forecasts under review and update them later in the summer.