UK mortgage approvals signalling lending recovery
Simon Ward
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UK net mortgage lending fell from £108 billion in 2007 to £40 billion last year and just £4 billion in the first seven months of 2009. In July alone, net lending turned negative for the first time in the history of monthly data extending back to 1986. This may, however, mark the trough, with mortgage approvals signalling a significant recovery.
Net lending is the difference between gross lending and repayments, which can be broken down into regular repayments, redemptions and other lump-sum payments. Net lending is unaffected by remortgaging activity, which boosts gross lending and redemptions by the same amount (assuming no change in the outstanding loan balance).
The chart compares gross lending minus redemptions with the sum of regular repayments and other lump-sum payments. These "other repayments" have been stable recently. The fall in net lending into negative territory in July reflected a further slump in gross lending rather than stepped-up repayments.
Gross lending minus redemptions, however, should recover significantly, judging from recent data on mortgage approvals, excluding remortgaging. Approvals have been climbing since late 2008 and their current level looks consistent with monthly lending of about £6 billion. With "other repayments" running at just below £4 billion, this suggests a revival in net lending to about £2 billion a month by late 2009.
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