British Mortgage Lending Rises, Consumer Deposits Spike

The British Bankerss Association (BBA) found that personal deposit inflows rose sharply in June while mortgage lending business grew modestly among high street banks. The data indicates British businesses continue to make payroll, putting cash into consumers’ accounts for deposit purposes on home purchase mortgages. And considering traditionally low loan-to-value ratios accepted among UK mortgage lenders — as restrictive as 70% to 80% — it means a lot of cash is needed for British consumers to become homeowners. The banks approved £4.7bn (US$7.78bn) of home purchase mortgages in June, from £4.1bn in May. The main high street banking groups account for £602bn of outstanding mortgage balances — some two-thirds of all UK mortgage lending outstanding, BBA says. “Numbers of new home loans approved by the high street banks are recovering from the very low level last November and so far this year, gross mortgage lending has topped £50bn,” says BBA statistics director David Dooks in a statement. “After repayments and redemptions, the banks’ net rise in mortgage lending of £18bn in the first six months is in sharp contrast to lending by the rest of the market, which is still contracting.” “People are showing little appetite for unsecured borrowing,” Dooks adds, “and are generally keeping more money in their accounts.” The BBA announcement is the latest evidence from the UK that a traditional, and more stable, mortgage finance market is beginning to take root. For instance, following a change in the reporting of covered bonds from April 2009, the mortgage assets held within such special purpose vehicles have been added back into the originating banks’ mortgage lending books, BBA says. In addition, requirements for Home Information Packs (HIPS) went into effect in late 2007, requiring any home seller to make available to potential sellers various information about the home: flood risk information, previous structural damage, parking arrangements, electrical safety, energy and carbon emission efficiency and evidence of title documents. It’s a sweeping package similar to inspections obtained by US home buyers but coming at cost to the seller. It was a step toward disclosure without sweeping housing regulation, but it caused waves in an already weakening UK mortgage lending market. The BBA back in mid-2007 anticipated the ripples the HIPS would make: “The recent trend in mortgage lending had been downward, so the stronger demand in May (2007) was somewhat surprising, particularly as it was before the anticipated introduction of Home Information Packs, which encouraged people to put their properties onto the market in May and will tend to boost lending in June and July,” Dooks said at the time. “HIPs may well distort mortgage data in the short-term, but this effect should smooth out with the phased introduction now planned.” Write to Diana Golobay.

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