Lenders at odds over mortgage promise as home loans slump again

Author: By James Daley, Personal Finance Editor

New figures, published by the Council of Mortgage Lenders, highlighted the desperate state of the British mortgage market, revealing a 63 per cent drop in mortgage lending in August, compared to the same month last year.

The CML said the figures underlined the need for the Government to clear up confusion over the terms of the bailout, with comments by the Chancellor, Alistair Darling, appearing to contradict the guidance which had privately been provided to banks by the Government.

Announcing details of the bailout package on Monday, the Treasury said that all banks receiving new government funding would be required to raise their lending volumes to the same levels as 2007. However, the Council of Mortgage Lenders expressed concerns that this requirement could be inappropriate in the current environment. The Treasury then privately provided reassurance to the CML that this clause was not designed to be prescriptive, but was inserted to ensure that banks made new money more freely available to borrowers to help ease the credit crunch. But hours later, Mr Darling reiterated that he expected the banks to raise their lending back to 2007 levels.

Yesterday, the CML said it was still seeking clarification on the meaning of the clause. However, a Treasury spokesman said the Government merely wanted to ensure that credit was available as and when consumers or businesses demanded it. “We want to see a mortgage market with a wide range of affordable products which are available to credit-worthy consumers ? but that doesn’t mean a return to the boom days of the past,” the spokesman said.

The CML figures published yesterday show the number of first-time buyers fell to just 15,600 during the month, the lowest level for almost 17 years, while the average amount borrowed by first-timers fell to 84 per cent of the property’s value, compared to 90 per cent a year ago, as banks continue to demand larger deposits.

Melanie Bien, a director of the independent mortgage broker Savills Private Finance, said: “The best deals are available to those with sizeable deposits or levels of equity in their homes and this is unlikely to change any time soon. As part of the bailout, the Treasury will want to see that lenders are being more ‘responsible’ so it is unlikely that we will see a return of 125 per cent loan to value lending, for example.

“Part of the reason for the levels of lending last year was the willingness of lenders to assist those who didn’t perhaps have a 25 per cent deposit but who still wanted to get on the housing ladder. Much more restricted criteria is bound to dent business volumes,” Ms Bien said.

In spite of the troubles in the credit markets over the past year, both Royal Bank of Scotland and Lloyds look to have continued lending at relatively high levels. During the first half of 2008, Lloyds picked up a 24.4 per cent market share of net new mortgage lending compared to just 3.5 per cent in the previous six months. Similarly, RBS saw its net mortgage lending share increase to 17 per cent, compared to just 2 per cent during the first half of 2007. HBOS, however, pulled back from the market significantly during the first half of 2008, taking only a 7 per cent share of the market compared to 20 per cent in the previous six months.

Although the Bank of England reduced base rates by 0.5 percentage points last month, mortgage rates still remain some way above these levels. Furthermore, many banks have decided not to pass on the full rate cut to their borrowers. Abbey and Northern Rock, for example, have both only cut their standard variable rates by 0.15 per cent.

While many banks have also been raising their tracker mortgage rates for new customers over the past few days, the first positive effects of the bailout were seen yesterday when RBS launched a competitive two-year fixed rate mortgage at 5.74 per cent with a modest £499 fee.

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