Is this revised prediction now achievable and will lenders up their game in the second half of the year?
Offering their view in this week’s Market Watch are:
Tony Ward, chief executive of Home Funding
Jonathan Cornell, communications director of First Action Finance
Gary Styles, strategy, risk and economics director at Hometrack
Tony Ward, chief executive of Home Funding
It is difficult to jump to conclusions about whole-year trends from just a couple of months’ figures.
However, I must say I thought the upward revision of the CML lending forecast from £135bn to £140bn in June looked implausible at the time and I still do.
Whilst it is true that things don’t look as bleak as they have done, with more lenders back in the market and a wider range of products available than there was this time last year for example, things are not ‘back to normal’ by a long way.
Yet, what has changed this year compared with a year ago is that demand has fallen.
A year ago the lack of mortgage lending was more to do with supply shortages caused by the global liquidity issues and shortages of funding. From late last year we slid into a demand-led problem and this hasn’t really changed.
Is this surprising? Not at all, in my view.
There is always a lag effect in the real economy from things being announced through to outcomes in behaviour.
In 2010, we had a change of government and announcements of austerity cuts.
It was only by late last year that these were beginning to make themselves felt and this has progressively tightened its embrace on the psyche of the British homeowner since then.
Positively, we have low interest rates and are likely to have them for some time to come, and house prices in and around London are reasonably buoyant.
But these are not enough across the population as a whole and, with more job cuts on the cards, concerns about the global situation and now riots in the streets, an altogether weaker picture is conjured up.
Uncertainty and lack of confidence are bad for the economy and will not help the recovery of housing markets and mortgage transactions.
Do I expect a strong recovery in transaction levels for H2 2011?
The short answer is no, I’m afraid – I expect lending to be flat year on year.
Jonathan Cornell, communications director of First Action Finance
Whilst a number of banks have published reduced lending volumes for the first half of the year, there are others such as HSBC that have published significant increases.
I think that volumes in the second half of the year will increase as, recently, lenders have been a lot more aggressive in their pricing.
Abbey for Intermediaries has been running a series of one-week sales for a number of weeks, so it has shown it wants to increase its lending.
Since Antonio Horta Osorio joined Lloyds Banking Group, it has been a lot more focused on its mortgage lending, its rates have been lower and its criteria have been improving.
If it had not done this, I think its gross lending volumes would have been substantially lower.
We have also seen a large increase in lending from the mutual sector.
Building societies like Saffron will never lend tens of billions of pounds, but they have shown they can be nimble and more flexible than the high street banks which rely on scorecard driven lending.
They can use underwriters to look at each case individually, something which the high street lenders just don’t have the resources to do.
Probably the greatest growth area in the mortgage industry has been buy to let, which has seen a number of lenders entering the market, with Accord joining recently.
For the last two to three years, BM Solutions and TMW have dominated the buy-to-let market, providing the lion’s share of the lending.
However, with more lenders entering buy to let, there is no doubt that others see it as an important growth area.
Gary Styles, strategy, risk and economics director at Hometrack
Gross mortgage lending in the first half of 2011 has been very much in line with our own forecasts prepared at the start of the year.
UK gross mortgage lending in the first six months was £67.9bn (seasonally adjusted) or around £136bn annualised.
We expect the gross lending market to finish at around £132bn in 2011 and 2012.
The CML’s forecast of £140bn prepared in June was always a little on the optimistic side and was built around a firmer UK economic recovery and outlook for the household sector.
Our own forecasts have been somewhat more downbeat on the assessment of the prospects for the household sector and the UK economy.
The events in recent weeks have, if anything, made us more cautious in our short-term assessment for the market.
The UK faces significant economic headwinds from the market upheavals in Europe and the US. Concerns about the sustainability of public sector debt positions have heightened nervousness and sent bond yields sharply higher in southern Europe, and dramatically lowered equity market values around the world.
There is no doubt that the respective performance of individual lenders in the first half of the year contained some surprises.
However, the mantra of mortgage market share is not what it was.
At one time slippage in market share below usual asset-based share was seen as a sign of financial weakness.
In today’s more difficult markets, some lenders are actually making a virtue out of negative net lending or shrinking gross lending share.
In the absence of a clear market leader, changing the direction and sentiment of the market is far more difficult than usual.
Perhaps the publication of the Sir John Vickers report on banking in mid-September may help change the current competition landscape in the mortgage market more than we think?
