Michael Coogan, director general of the Council of Mortgage Lenders says current policy objectives are conflicting and incoherent and lenders are falling victim to the government’s tug of war games.
Coogan, says: “To different degrees lenders are facing conflicting pressures to recapitalise against possible future losses, service government’s preference shareholdings at 12%, pay a premium to access the Bank of England Special Liquidity Scheme.
“They must also show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive rates to new borrowers and savers to maintain economic activity in a recession.”
Coogan says on top of this they are also supposed to ensure their long term financial stability to help the UK economy rebuild itself when we are out of the recession.
He adds: “Current policy objectives are conflicting and incoherent. The government needs to decide on its key priority. The tug of war with lenders being pulled in every direction at once needs to end.
“We believe the government urgently needs to review the cumulative effect of the approach it has taken in the recapitalisation process on large lenders’ willingness and capacity to lend.
“Ultimately, the response of each lender – whether on commitments to follow base rate moves or to finance new business in the future – will depend on its access to, and the price of, its funding.“
Coogan highlights recent CML data which shows there were 39,900 house purchase loans in October, worth £5.5bn.
This was an increase of 14% in volume and 10% in value from September, but an annual decline of 52% in volume and 57% in value.
The rise in house purchase lending was evenly spread across first-time buyers and home movers. There were 15,400 loans to first-time buyers and 24,500 home mover loans in October, up 15% and 14% respectively from September.
A modest rise would typically be expected between September and October, but uncertainty in the summer about a stamp duty holiday may also have inflated October completions compared with September.
There were 70,000 remortgage loans worth £9.4bn, an increase of 12% in volume and 11% in value from September and a decline of 31% in volume and 28% in value from October 2007.
Gross lending rose slightly to £18.6bn, up 6% from September but 44% lower than October last year.
While the average loan-to-value and income multiple continued to contract for all homebuyers as a result of falling house prices and tightened lending criteria.
First-time buyers typically borrowed 83% of the property’s value and 3.10 times their income, down from 84% and 3.18 in September. Home movers typically borrowed 68% of the property’s value and 2.73 time their income, down from 71% and 2.73 in September.
Interest payments have declined as a result of lower mortgage rates and income multiples. Interest payments typically consumed 19.3% of a first-time buyer’s income, down from 19.7% in September. Home movers typically spent 16.1% of their income on interest payments, down from 16.9% in September.