Mortgage lending falls away as banks demand more

By THIS IS MONEY
Updated: 06:02 EST, 6 January 2011

Mortgage borrowing fell sharply in the final months of 2010, with buyers walking away in the face of the huge deposits demanded by banks.

Walking away: Buyers are reluctant to borrow.

Demand for mortgages from people buying a home fell sharply during the fourth quarter as the lending drought continued, according to the Bank of England's Credit Conditions Survey.

A balance of 41.5% of banks and building societies said borrowing for house purchase 'fell markedly' during the final three months of the year, with demand dropping at its fastest rate since the third quarter of 2008.

A combination of falling house prices and economic uncertainty caused by Government spending cuts caused people to delay decisions to move, and these factors are expected to continue to contribute to subdued lending.

But there was a feeling among lenders that the inability of would-be buyers to raise the huge deposits currently needed to secure a competitive rate was also constraining demand.

The level of mortgages available remained broadly unchanged during the fourth quarter, and lenders are not predicting much improvement in the coming three months.

Instead, some reported that availability had been dampened by the outlook for the housing market, while slightly tighter wholesale funding conditions had reduced their own ability to borrow.

In late November, wider developments in the eurozone also spilled over into lenders' wholesale funding markets, with some banks saying long-term funding costs had risen, while the conditions for issuing bonds had become more difficult.

These factors, combined with the ongoing economic uncertainty, are expected to continue to act as a brake on mortgage lending.

The only bright spot in the Bank's Credit Conditions Survey was that some groups thought a desire to increase market share would lead to some increase in mortgage availability.

But in a further blow to first-time buyers, banks said recent house price falls had led to a slight decrease in the availability of mortgages for people borrowing more than 75% of their home's value.