The Council of Mortgage Lenders has warned there is no sign of a return to normal mortgage lending in the foreseeable future, as it reveals mortgage approvals have fallen 50% since 2007.
There were 518,800 mortgages approved in 2009, compared to the 1,015,000 approved in 2007.
In its latest issue of News & Views it says there is no sign of a return to more normal mortgage funding availability in the foreseeable future.
The trade body says the contraction in UK mortgage lending since 2007 has been the most severe on record. In both 2008 and 2009, fewer than 520,000 loans for house purchase were granted – lower than in any year since 1974.
In the preceding decade, loans for house purchase averaged almost 1.2 million a year, so the fall has been in excess of 50%.
It says based on data to date, it expects to see lending for house purchase in 2010 running at levels similar to 2008 and 2009.
The fall in lending is even more dramatic when measured by value, rather than volume. In 2009, gross lending for house purchase totalled £70bn, 55% below the 2007 figure of £155bn. Over the same period, net mortgage lending fell from £108bn to £12bn and a further decline is expected in 2010.
Not surprisingly given this background, housing transactions have fallen to their lowest level since current records began in 1978. The 770,000 transactions recorded in England and Wales in 2009 compares with 1,430,000 in 2007 and a low in the last housing market downturn of 1,134,000, recorded in 1995.
The CML is questioning what has driven this unprecedented contraction in lending and whether it is driven by demand or supply.
It says although we must allow for some decline in demand, the pattern it has seen in this downturn underlines the extent to which the current slump is different.
It believes it has been driven principally by a reduction in the availability of credit, while previous downturns in the early 1980s and early 1990s were essentially caused by a reduction in demand for credit in the face of economic uncertainty and high interest rates.
This difference it says has important aggregate effects, creating exceptionally low liquidity in the housing market, which is a bar to labour mobility, and over time bears down on economic efficiency, which requires a workforce capable of moving around freely in response to market needs.
But the trade body says it has also pronounced effects on specific groups of customers such as first-time buyers without access to parental funds and the self-employed.
This for some households means remaining in sometimes expensive or inappropriate rental accommodation for longer. For those already in the housing market, it can restrict their inability to shop around for a better mortgage deal, let alone move house.
If says if these effects were temporary, they would be less of a concern. But, even as the capital markets start to recover, it is clear that credit supply, risk appetite and competition are not likely to return to normal any time soon.
This has serious implications for households seeking to make what would previously have been perfectly reasonable decisions about buying a first home, accommodating a growing family or moving to take up a new job.
The CML says: “These effects become more pronounced over time – and, while borrowers and lenders have now endured the consequences of the credit crunch for more than three years, there is no sign of a return to more “normal” mortgage funding availability in the foreseeable future
“Finally, current market conditions also bear down on consumer confidence at a time when the economy will have to absorb a significant fiscal tightening.”