This means, according to the CML’s gross lending figures, that lending will remain 76% below its current 10 year average.
Coogan also suggests that the stagnation of the mortgage market is in some ways a good thing. A consistent level of lending will prevent a mortgage bubble, so subdued activity is a boon for economic security. Indirectly, Coogan is asking whether three more years of limited lending activity might be just what the UK needs.
While nobody wishes to create another bubble, the dangers of a subdued – or even stagnant – mortgage market must be addressed promptly. If lenders look to avoid rather than manage risk, the damage could be just as significant as that which was done by the recession and the resultant growth of the UK’s public debt.
The latest data from the Land Registry shows house prices have fallen by 2.5% since June 2010, meaning prices are currently 13% below their peak in November 2007. This means people who bought property at the peak of the market with LTVs higher than 87% are in negative equity.
But that doesn’t reveal the full scale of the problem. The 13% price fall is not adjusted for inflation. In fact, between November 2007 and June 2011, house prices have fallen by 28% in real terms.
The correlation between mortgage lending and property prices is very close and as long as lending remains subdued, the finances of homeowners will be under pressure as their equity and its purchasing power are continuously eroded.
This is why it is important that lenders are not excessively restricted from going about their business. A stagnant lending environment is barely more desirable than an overheating one.
The size of mortgage advances over the next three years will be determined largely by the FSA and the government’s housing policy, but it will also come down to lenders to decide what approach they will take to managing risk.
In this respect, there are grounds for real optimism. Mortgage lenders have shown they are willing to look outside the box to boost their activity. Saffron have launched a 95% LTV product which assesses borrowers according to their performance as tenants.
This is one of a number of innovative products coming to the market which seeks to find new ways of lending to the first-time buyers who have been excluded from the market by exacting criteria.
Measures like this already appear to be supporting the market According to the latest LSL house price index, transaction numbers in regions where prices have fallen in the last year have begun to recover, suggesting prices may begin to pick up as demand increases.
Coogan’s view that the market is doomed to stagnate may appear realistic, but such a resigned attitude is precisely what the industry should seek to avoid.
Lenders are already showing they have the appetite to boost the market and it is a proactive attitude to innovative ways of increasing lending which will give the industry the best chance of outdoing the director general’s prediction.
