UK Housing Market: What's Really Behind Record Low Mortgage Lending

Mortgage lending for new home purchases rose 4% last month according to the British Bankers Association, but is still at shockingly low levels with just over twenty-seven and a half home purchase mortgages approved for the entire month. It is also worth mentioning that net mortgage lending as a whole, including repayments and remortgaging fell to an 8 year low.

The Royal Institute of Chartered Surveyors was quick to comment on the figures; highlighting the rise in new purchase mortgages and the fact that mending is still at very low levels. RICS put this down to the fact that the money injected into the banking system by the government isn't taking effect yet, and the bank's still employing restrictive lending policies.

No one seems to be taking into consideration the fact that mortgage lending might be so low, because the terrible state of the economy -- millions unemployed, millions more facing near certain unemployment, and millions more unable to rule out the possibility of unemployment -- doesn't leave many people with the ability or the inclination to make any long-term financial commitments, let along the biggest financial commitment most of us will ever make.

Nor are they considering the vendor realism factor. The UK house price indices are taken on sale prices, but most vendors are still marketing their properties at far above this level, that is playing its part on the low transaction levels, but it is also having an effect on mortgages; the banks are not going to lend on a property that is not worth what the borrower maybe willing to pay, especially if the mortgage comes close to or over 100% of what the bank rates as the property's true present value.

This is made worse by the fact that banks still believe prices have to fall a little yet, Lloyds thinks another 6%. But this can only happen when vendors are willing to be realistic about the price drops we have already experienced.