14th June 2013
The financial crisis has battered the mortgage market so hard that lending is unlikely to ever return to pre-fallout levels, leaving thousands of aspiring home-buyers out in the cold, says a new report. Philip Scott reports.
At the peak of mortgage lending in 2007, some £360bn gross was lent out. But an analysis from trade body, the Intermediary Mortgage Lenders Association has concluded this benchmark will not be seen again and the “new normal” might well function at under £200bn a year. In 2012 notched up just £143bn, just 40% of the 2007 high.
In previous market cycles credit typically became cheaper and more readily available as the boom got underway. With loosening credit standards more purchasers were drawn into home ownership, and given supply constraints property prices tend to rise.
But since the credit crunch, there has been an utter reversal of this trend.
The IMLA has warned that home ownership however is likely to continue to decrease, unless policymakers and regulators look to reform the market. It highlighted the limitations banks face in typically only being now able to offer mortgage deals to buyers with very high deposits.
The report stated: “In all of this there is an unanswered question at the moment as to how far government and industry expect to return to the world as was in say 2000 or if there is an acceptance that we are moving inexorably forward towards a new ‘normal’. The new normal has been aired on a number of occasions though this has tended to be short on detail.”
The report argued that central to the concept is a mortgage market with reduced capacity and appetite compared to the peak of 2007 and a consequential shift in the balance between owning and renting with the latter moving above a third of all households – it also implies later entry into home ownership.
It adds: “This smaller market with fewer transactions and almost certainly less innovation clearly has wide implications for borrowers, brokers and lenders let alone the economy as a whole.
“Within that there is a case for a housing policy debate about whether younger households should be required to rent, or be provided with the opportunities available to the previous generation to become home owners on the basis of a low deposit mortgage within their means.”