21st January 2013
In 2013 the CML expects to lend £156bn and says this rise should come about partly because of the Goverment's funding for lending scheme.
CML chief economist Bob Pannell says: "We are more positive about the UK housing market and wider economy than a year ago, despite economic headwinds and downside risks. A key reason is that lenders currently face few funding pressures, in part reflecting the funding for lending scheme. House purchase activity was robust in the fourth quarter, on the back of better mortgage availability and pricing, and we expect this to continue over the coming months."
The trade body accepts that this may be counter-intuitive because of the recession in the Eurozone and concerns about the UK economy. However it says that because of the determination of the European Central Bank to intervene in the euro crisis, it has helped the mortgage banks secure funding.
It says: "A greater confidence that eurozone difficulties can be resolved over time has meant better funding market conditions since last summer."
On the Funding for Lending Scheme, it says: "While it is still early days for the FLS, and so uncertainties around its effectiveness are understandable, the scheme clearly adds another monetary weapon to the Bank of England's armoury. Recent MPC decisions to refrain from further quantitative easing (the previous increase to £375 billion was completed before November's MPC meeting) in part reflect an expectation among policy-makers that the FLS will stimulate lending over the coming months."
It adds: "It is worth noting that the amount actually drawn under FLS – about £4 billion, according to the Bank's early December report – is relatively small so far. This suggests that much of the initial benefit from the FLS has been an indirect one, as UK lenders need to raise less money from wholesale or retail sources. With limited volumes of issuance, spreads have continued to tighten, and in some cases fallen back to pre-crisis levels."
The fact that despite low growth the UK has seen relatively low unemployment and high employment is also positive for the mortgage market.
"The adult unemployment rate currently stands at 7.8%, down half a percentage point on a year earlier. And, as we highlighted in our recent market forecast paper, employment – at 29.6 million – is up half a million over the same period," it says.
It adds that while inflation is outstripping growth in household earnings, the gap has narrowed.
It says the latest credit conditions survey from the Bank of England highlights that the UK enjoyed both better mortgage credit availability and cheaper mortgages in the fourth quarter.
The survey also notes a pick-up in mortgage demand across the board – house purchase, remortgage and buy to let which the CML says confirms the return of lending onto a stronger path. Our December figure implies total lending for the year as a whole of £143 billion, up modestly from 2011.
The CML says its figures suggest a resilient fourth quarter for house purchase activity. "For most months in 2012, house purchase lending has been above year-earlier levels. Loans in November were up 6 per cent on October and 13 per cent higher than a year ago. First-time buyer activity looks especially strong, with loans accounting for an unusually large 41 per cent of all house purchase loans for the second consecutive month."
On remortgaging it says: "While remortgage lending continues to show some softness, this is against a backdrop of very subdued activity through 2012, as a result of low back book rates limiting incentives to refinance onto new deals. However, the position seems to have stabilised over recent months, as more competitive mortgage deals – on the back of better funding conditions – re-kindle remortgaging appetite."
The CML says that recent household surveys show that raising a deposit and getting a mortgage are beginning to loom less large as impediments to buying a home.