AMI warns gross lending may not reach £150bn

22 July 2010 | By Natalie Thomas

In its latest Quarterly Economic Bulletin, released today, AMI says: “We are concerned that gross lending might not meet our previous predictions of £150bn for the full year.

“Despite a poor first five months, a better second half is anticipated. The good news for brokers is that a large share of the volume is going to them. Two thirds of the lending in the first half went via intermediaries, while one third went direct.”

It says there are some new entrants into the market, such as Precise Mortgages but new competition is fairly small scale and the market is dominated by a few large players.

The Council of Mortgage Lenders also recently warned that gross lending may be under its forecast of £150bn for 2010.

AMI has also warned that the UK is vulnerable to a second wave of liquidity problems because of a £800bn funding shortfall.

Of this £800bn total, £200bn is owed to the Bank of England itself via the Special Liquidity Scheme.

AMI says: “The SLS has been successful in increasing liquidity in the system and crucially in raising confidence among banks that their trading partners would have available funds to meet their commitments.”

It says whether it has increased the amount of funds available for mortgage lending is much more debatable given that the banks have been focusing on rebuilding their capital base, and avoiding more lending to already debt-laden consumers.

But it says: “There is little doubt, however, that the scheme’s withdrawal beginning April next year will significantly curtail the funds available for the mortgage market.”

AMI says something will have to give, and UK banks have so far this year been raising only half the money the Bank of England calculates they need on a monthly basis to meet the liabilities falling due, apparently in the Dickensian hope that ‘something will turn up’.

It says: “It seems inevitable that the Bank of England will have to provide further support, but does not at this point want to be the first to blink.

“Creating an expectation of further support will make its realisation necessary as the banks heave a sigh of relief – the sort of moral hazard the Bank does not want to repeat. A more prolonged wind-down of the SLS is a likely outcome in our view – the credit system is nowhere near ready to stand on its own two feet.”

Robert Sinclair, director of AMI, says: “All the main banks face challenges to their ability to fund mortgage lending as the Special Liquidity Scheme reaches its repayment phase early next year.  A practical solution is required that allows a sustainable mortgage market, so that consumers can look for a property safe in the knowledge that funds might be available.

“With the emergency budget behind us we have more certainty about interest rates, taxation plans and likely levels of unemployment as the public finances are brought under control.  We expect house prices to have a large degree of regional variation, with prices overall reaching the year end much the same as now.”

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