Northern Rock resumes lending - what will be its impact?

The announcement that Northern Rock is to resume mortgage lending (£14Bn by the end of 2010) is welcome for the mortgage market as a whole but will probably only drive indirect benefit for the Buy To Let sector.

The gov't announcement on Monday that Northern Rock will resume lending on homeowner mortgages with £5Bn this year and £9Bn in 2010 came after weekend speculation that NR would be lending £15Bn - funny how the press always seem to know what happens at NR before any real announcement.

The fact that only £5Bn will be lent in this year is acknowledgement that it will take time to build a pipeline from which to complete the loans. Given that we are approaching the 3rd month of the year this is a pragmatic figure for the remainder of 2009. They have been doing some lending over the past few months so it won't be difficult for then to gear up their operations.

That aside it is good news for the market for the following reasons...................

More money supply and improved lending criteria will help to ease the credit crunch and provide some competition in the residential mortgage market. As a consequence real lending margins may reduce slightly.

Whilst NR are unlikely to promote Buy to Let mortgage lending (they do actually have a couple of pricey Buy to Let products) the element of competition may encorage other lenders to switch some resources from residentail to Buy to Let lending.

Additional funding for personal residential mortgages is a pre-requisite for stabilising the housing market as a whole and much of the Buy to Let property is First Time Buyer or Second Mover property which will receive an uplift if homeowner borrowers start to re-emerge at the Estate Agents !

All in all a welcome development.