Mortgage approvals still falling
New figures published today by the Council of Mortgage Lenders show approvals for house purchase and remortgage loans continuing to decline in the year up to June 2011 – down by 11% overall and down 8% for first time buyers. Furthermore, today’s release also shows lenders continuing to demand an average deposit of 20% from first time buyers. The banks are clearly determined to replace their pre-recession profligacy with excessive parsimony.
In my view, the snag is that we cannot have a stable economic recovery until the banks are once again willing to lend reasonable amounts of money.
The reasoning runs as follows – the credit crunch was caused by the banks stopping lending, which then sparked the recession, caused house prices to fall and severely depressing consumer demand. Nobody is spending at the moment because credit is hard to come by and both employers and workers are waiting to see what happens to the economy next.
However, an end to house prices falling is a necessary condition for the revival of consumer demand, which in turn is needed to encourage firms to invest. The availability of sufficient mortgage finance under reasonable conditions of access is therefore a precondition for a stable economic recovery.
The Government has agreed targets for lending with banks, but has allowed them to fall way short with impunity. Time to employ some sanctions with teeth.