Mortgage lending in 2011

According to the Nationwide Building Society, house prices fell by 0.3 per cent in May 2011, compared with the previous month, meaning on average, a home costs 1.2 percent less than April 2010. If houses are cheaper, are more people buying?

The short answer is no. The Council of Mortgage Lenders figures about Gross Mortgage Lending this month show that mortgage lending is also down. The CML find that Gross Mortgage Lending is:

• down to an estimated £9.8 billion in April,
• down 14% from £11.4 billion in March,
• and down 5% from £10.3 billion in April 2010.

So why are fewer people buying and what impact will this have? Mortgage lenders are more cautious about lending these days and there is the threat that interest rates will rise in the medium-term future. Standard & Poor's Ratings Services published a report this month forecasting interest rate hikes within the next 18 months. Jean-Michel Six (Chief Economist for Europe at S&P) commented:

"We expect housing markets to retreat in the U.K. and France, and remain in the doldrums in Spain and Ireland."

So the threat of interest rates rising is one factor affecting lending. Ian Williams of http://thinkmoney.co.uk/ commented on how this will impact on rental properties:

"Many setting up home for the first time have found it hard to secure lending, which has increased demand for rental properties as well as rental property fees. Rental fees are rising which may encourage buy-to-let landlords to increase their portfolios or encourage newcomers."