Mortgage Lending – Why Mortgage Lending Will Not Return to 2007 Levels

Commentators have rightly pointed out that since the credit crunch first emerged house prices have been pushed down by the drying up of obtainable mortgages. Where once there were 25,000 different mortgages obtainable, there is now perhaps 10% of that. With that kind of shrinkage in choice its no surprise house prices have fallen and keep falling.

The Government have sought to tackle this problem by re-capitalising the edges and by pumping money into the system and by widening their own acceptance of assets in return for loans. Government ministers have frequently stated their intention to return the system to 2007 lending levels, but they either don’t understand or don’t wish to publish the meaningful fact which makes this impossible.

During the period 2003-2006 the UK saw an explosion in the number of mortgage lenders looking to lend money within the housing market. This was funded by wholesale market money and resulted in an explosion in the number of products obtainable, and an explosion in the kind of similarities which were now permissible and in the kind of people who now qualified for a mortgage. When the credit crunch came those new lenders shrank away, they are doubtful to return anytime soon.

So here we are in a UK housing market where mortgage lending is at an historically low level, with a government seemingly determined to deliver on its mantra to return to 2007 lending levels. already when we reach the bottom of the housing price cycle (wherever that might be), and already when the recession ends and the risk of further bouts of unemployment recede and edges can lend confidently again the sad truth is we will nevertheless be a long way away from 2007 lending levels. The reason for that is simply that there is not the underwriting capacity or experience in the system to deliver a return to that level of mortgage lending and nor is there an appetite within the remaining edges to go into markets they have traditionally avoided.

For mortgage lending to return to 2007 lending levels we would need lenders ready and willing and able to lend to not only niche character types (e.g. concrete construction, high rise, ex-council flats, flats over shops, flats over pubs or restaurants, post-war timber housing, steel framed housing, etc) but also to people who had irregular income , bad negative credit histories, rely slightly on benefits, can’t validate their income, rely on investment income, have low deposits etc. As the remaining lenders have NEVER had an appetite generally to make these sorts of lending situations part of their chief business it is doubtful that they will do so now. So in spite of of the amount of money the Government pumps into the banking system, in spite of of the state of the housing market or the risks associated with mortgage lending from a wider economic situation it remains highly doubtful that we will see a return to 2007 lending levels until niche lenders return to fill the gaps that the major mortgage lenders in all likelihood will never want to fill.

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