Politics & Money

UK Mortgage Lending, Home Prices Rise

While total lending to individuals was down in the UK, mortgage lending increased by £2.1bn (US$3.39bn) in July, above the £1.9bn increase in June, the Bank of England reported. There were 50,123 purchase mortgages approved in July, a 5% increase from June and a 50% jump from one year ago. There were 35,206 remortgage (refinance) loans approved in July, higher than the June total and the monthly average over the last six months. But the 12-month growth rate ending July 2009 fell by 30 bps to 0.8%. The July net repayment was £400m, from June’s net repayment of £100m. There were 27,278 loans approved for other purposes, lower than in June and below the monthly average over the last six months. The Council of Mortgage Lenders (CML) said the July results were in line with its projected £5bn decrease in net lending in 2009. “Activity still remains weak, but has improved from the historic low levels of turnover at the beginning of the year. We expect volatility in net lending levels over the rest of the year and there may be other months in which negative net lending occurs as the recovery is likely to be sporadic and shaky at first,” CML economist Paul Samter said in a statement. “Overall however, the figures are consistent with our view of a slowly improving house purchase market, yet still constrained by a lack of available funding and the fragile economic backdrop,” he added. The lending data comes as Hometrack, a UK housing data service, saw UK home prices rise 0.1% in August over July after three months of steady prices. The 12-month decline in prices slowed one percentage point every month since June, and was at 6.7% in August. But the national results are skewed by sharp increases in price in London and Southeast England, where low supply has driven prices up. Hometrack said the London market has seen a 2.6% increase in the number of homes on the market, but a 34% increase in demand, highlighting the disparity emerging between supply and demand. Originations and house prices may be up in the UK, but deteriorating performance of existing collateral led to downgrades of 96 non-conforming residential mortgage-backed securities (RMBS) tranches in Q209 by Fitch Ratings. “Along with deteriorating collateral portfolios, further negative rating actions were taken on transactions that were not hedged against their respective note indices,” Fitch said in a corporate release Tuesday. “The lack of an interest rate swap to hedge the spread between loans earning the Bank of England base rate (BBR) and notes linked to Libor, has stressed revenue funds for a number of transactions,” Fitch said. “Although the differential between BBR and Libor has narrowed considerably of late, these transactions have already taken a significant hit from the absence of an effective hedge.” Write to Austin Kilgore.

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