UK homeowners are reported by the British Bankers Association to have paid down more mortgage debt in May than there was new borrowing for the first time since the BBA started collecting the data in 1997. You can see their report here.
What does this mean for the property market?
The decline in lending is partly attributed to homeowners taking the opportunity of low interest rates to pay down debt. In which case, that’s good for them and for the market as a whole. The more equity a homeowner has in the property, the easier it is to move and the easier it is for them to get a mortgage on another house when they do decide to move.
On the other hand, the decline is also put down to a fall in the number of mortgage approvals which the BBA say are now at their lowest level for 13 months.
Mortgage approvals are certainly an important indicator of market conditions, but I’m inclined to wait until the Bank of England issues its own, more comprehensive, figures on this due out on 3 July, especially since their Credit Conditions Survey issued today suggests that overall credit conditions for homeowners are relatively stable.
I prefer to use the BoE figures on approvals, largely because they include all mortgage lending – not just that from the high street banks. It’s possible that the High street banks are losing ground to other mortgage lenders and, if so, a fall in approvals from the high street banks wouldn’t necessarily mean an overall fall in total approvals.
Moreover, the Credit Conditions Survey by the Bank of England suggests a slightly more complex situation. The Bank said: “Lenders reported that the overall availability of secured credit provided to households was broadly unchanged”.
What has changed, however, is the willingness of lenders to offer mortgages to those with small deposits: “Lenders expected availability [of secured credit] to remain unchanged in the next three months, but they expected the availability to borrowers with high loan to value ratios to decline markedly”. You can see that effect in the chart from the Bank of England linked to this post. Overall credit availability (shown in purple) shows no change in the second three months of 2012. Credit to borrowers who have high loan to value ratios (in green), however, has fallen sharply.
So, the banks have the same amount of money to lend, but will increasingly limit their lending to those with decent deposits. That’s good for anyone with equity in their home and family financial support, both of whom could find it easier to get a mortgage. It will be frustrating, however, for first time buyers and for anyone without enough equity in their home to constitute a decent deposit.
There’s some hope that the “funding for lending” scheme announced by the Bank of England and the Treasury earlier this month could improve credit availability. The idea is that the Bank of England lends money to the high street banks only on the condition that they pass that lending on – to homebuyers among other. But it is still up to the banks to set their lending criteria and, if fears of possible loses in Europe persist, they are unlikely to relax their criteria in the immediate future.
Ultimately, the BBA report is another illustration of how we are developing a two speed market. Those who can are paying down debt and will find borrowing easier. Those who can’t will find it harder and more expensive to borrow.