Wednesday, September 23, 2009

Pride comes before a fall…

Mortgage lending soars by 81% in one year

Mortgage lending by the major banks soared by 81 per cent August, in a further sign of the end of the recession. The British Bankers Association said the staggering rise was a reflection of the state of the slump a year ago. There were 38,095 mortgages approved for house purchases in August, compared with 21,001 in August last year. David Dooks, BBA statistics director, said: "The main high street banks' mortgage lending has stabilised in a market where other lenders are largely inactive. "Loans approved for house purchase have recovered to early-2008 levels, but low levels of customer demand and a limited number of properties coming on to the market will continue to moderate lending."

Posted by mark wadsworth @ 10:49 AM (3600 views)
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45 thoughts on “Pride comes before a fall…

  • “low levels of customer demand”

    That’ll be ignored by the BBC when they report on this.

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  • BBC business section currently has it as “Mortgage approvals up 81% in year” see news.bbc.co.uk/1/hi/business/8270379.stm

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  • Paul, no, instead they will say something like this, without reference to any source or data,

    “However, many potential homeowners have been saying that they have been finding it difficult to get a loan, with many needing to put
    down a large deposit.”

    Oh, hang on I’m wrong, they will do exactly that: news.bbc!

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  • 81% of near nothing, is still near nothing, in fact its laughable. Poor old Winston Churchill must be doing about 1500rpm at the thought of how Britain is being fleeced from the inside out.

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  • From the BBA’s website:

    Now why didn’t the BBC reproduce that?

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  • OK, I made a mistake (Shock! Horror!)

    Two days ago I calculated that deaths were liberating around 320,000 houses a year, which, when taken together with new build, represented 37.5k empty properties a month becoming available.

    That was correct.

    My mistake was to compare that number with the number of FTB’s, without factoring out the rental sector ( sackcloth, ashes, grovel for forgiveness..!)

    Owner occupation represents about 70% of UK housing, so factoring out the rental sector, we just over 26k properties available to FTB’s each month.

    However the actual number of FTB’s has become shrouded in mystery, since the CML stopped putting the number in the public domain last year – I wonder why..?

    I made a broad guess at 40%, but today have been trying to elicit the actual number.

    There’s not a lot out there to work on, but a report referencing the FSA said that £5bn had been advanced to FTB’s in the second quarter, up from £3bn. Another report said that the average price paid by FTB’s was £160k, but did not reference the data.

    I can’t find a good reference for the average LTV for FTB’s, but 80% seems a fair guess at the moment, as higher LTV’s suffer punitive IR’s.

    80% of £160k = £128k average advance. Divided into 5bn, that makes 39k mortgages over a three month period – or just 13k per month.

    13k vs 26k suggests that there is a 100% oversupply of vacant property coming onto the market – well over 400 properties per day.

    And is the surge from 3bn lending to FTB’s to 5bn a trend? -or the result of impatient parents, with the option to act as BOMADS, making their move when the market appeared to have settled?

    Another report indicates that 55% of current FTB’s are being funded by the BOMAD – I don’t believe that anything like that number of potential FTBs have that option available to them..

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  • letsgetreadytotumble says:

    Why do so few leave a comment on the Metro site, I wonder?
    I always get sucked-in :o)

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  • Risking a sedond brew: Never in the field of human charlatanry, was so much hyped by so many, to such depth.

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  • @ UT, according to this, there were 20,400 FTB mortgages in July 2009. Other sources say 75% typical deposit.

    (BTW, your downwards adjustment of 30% for rented properties is wrong. Only about one-eighth of privately owned housing is owned by landlords, i.e. 20% in social housing, 10% in private rented and 70% in owner-occupied. And you can add the annual repossessions (about 40,000 now that it is very difficult) to that, so the correct figure is 320,000 + 130,000 + 40,000 = 490,000 x 7/8 = 429,000 per annum ÷ 12 = 36,000 per month, or over 1,000 per day.)

    If you times 20,400 FTBs in July 2009 by 12 you get 240,000 (probably less if you seasonally adjust, but hey!). Seeing as there about 700,000 people in each year-of-age-cohort between 25 and 35 (typical FTB age), most buy as couples (=350,000 couples) and about 70% are potential buyers, we’d expect the annual number of FTBs in a stable equilibrium to be about 245,000.

    Which suggests, rather surprisingly, that the FTB’s are joining in the fun, and there isn’t that much “pent up demand” left to release. FTBs are snapping up half of what comes onto the market (in terms of units) and that is the end of that.

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  • Never in the field of human Spencer, has so much Allsopp been waffled by so many for so few houses to be sold.

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  • Re UT’s number crunching and my comment 11 above, our fag packet figures of 36,000 new properties up for sale each month and 20,000 sales to FTBs (we can ignore other sales as those are between subsequent buyers, they all net off to nothing) seems quite a staggering imbalance (and is probably exaggerated, but I can’t see quite where or how).

    But then also remember that “time on market” in most areas is currently 12 – 15 months, so those stocks of properties up for sale are just building up and building up. The amount of the build up of backlog each year = properties up for sale minus FTBs minus BTL’s (do we still have those?).

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  • Ah, the BBC have now included a graph on their story, but it only goes back to Jan ’08, so you can’t compare with pre-crunch figures – strange that.

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  • Shining Wit @ 10

    I’ve noticed for sale signs popping up more (Bournemouth area – Wimborne to be specific) and have been getting more Rightmove alerts about properties that meet my search criteria (I’d estimate 3 or 4 times in the last month).

    One particular road I drive down used to be lots of big houses, over the last few years they got knowed down and flats got built.There are now 20ish blocks with mayby a dozen flats in each. my son counted the ‘For Sale’ and ‘To Lett’ signs last Sunday – there were 76 !!!
    Something above 20%….I noticed a few were ‘Sold’ and ‘Let’ signs, but not many of them.

    Thinks there are some desperate BTLers there,

    Just anecdotal, but I thought it was interesting

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  • sorry, that should be back to July ’08

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  • phd @ 14. Even more misleading, it actually only traces back to JULY 08. Would be interesting to see how August 09 figures compare to August 07…

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  • They’re a stubborn lot the British, generally thick, but reassuring stubborn when it comes to buying their own little box.

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  • i am smiling, i am laughing, i am loving it!!!

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  • cynicalsoothsayer says:

    [email protected]
    Your 36,000 new properties up for sale each month approximates the 38,095 mortgages approved for house purchases in August, so the market must be nearly in balance?

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  • ontheotherhand says:

    [email protected]
    Does the 36,000 include other forced sales such as divorce (140,000 in the UK each year), and unemployment. Does it include voluntary sellers who want to trade up or who see the writing on the wall and are becoming renters?

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  • They might be up 81% on last year but they are way way down on August 06 and August 07 numbers. Those years were ridiculously high, 08 was too low – perhaps this is the new norm?

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  • mark wadsworth says:

    @ Cyncial Soothsayer 17 – it is far easier to completely ignore sales/purchases between subsequent purchasers as they net off to nil.

    @ OTOH, all the “forced sales” boil down to 40,000 actual physical repossessions each year (which I included in my total of 490,000 above). The rest are kept afloat (until the next election at least) with delaying tactics, mortgage subsidies from HM Govt, zero interest rates etc. If the true figure is higher than 40,000 (i.e. closer to your 140,000) then the imbalance is even more extreme.

    The long run balance has to be between people selling up without replacing (death, divorce, debts, BTLs) and people buying for the first time (i.e. FTBs and maybe a few hardcore BTLers).

    In other words, roughly half of completions are like-for-like (sell one, buy one), which neither increases nor reduces the total number of properties up for sale. So the imablance is possibly as high as two-to-one (two new properties for each FTB – not that our FTB can afford either of them …).

    @ Timmy T, total sales volume down by about half compared to 2007 pre-Crunch.

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  • Mark,

    The piece you linked to talks of mortgages ‘going through’, which is a bit vague – and the numbers are a bit suspect – on the one hand they don’t tally with the number of home sales (compare with phd’s bar graph above) but they also seem too low if remortgages are included..

    ..I wonder if these are actually the number of mortgage offers made “yes, Mr Smith, we will let you have a mortgage, once you’ve saved another £50k..”

    On your own maths, I don’t think you can add in the number of repo’s, without some adjustment – while some of these people go to live with relatives, I suspect the great majority go on to occupy a rented property. But then, how many repo’s are for property that is already empty?

    It is very hard to assess the exact direction of the tenanted sector – right to buy is still being exercised, and I know of old people who are still in council houses being lent on by their relatives to exercise their right before they pop their clogs – with the money sometimes being fronted by their kids!

    We don’t have much data on how many BTL’s are now going to the repo auction – although I expect that number will take off before long. Construction of social housing appears to be very small, and there will be no governemnt cash for generosity on that front.

    My feeling is that the underlying trend will be toward greater owner occupation – but that means poorer people have to be able to afford to buy..

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  • mark wadsworth says:

    … or another two ways way of looking at it (in very round figures) …

    Method One: If 36,000 properties come up for sale each month and there are 20,000 FTBs each month, then total stock must be increasing by 16,000 every month = 192,000 each year, call it 200,000 x two years of crash so far = 400,000 “pent up supply”.

    Method Two: sales in past year half a million, ratio of house-for-sale compared to one-year’s-sales = 125%, ergo, there must be about 625,000 properties up for sale. Let’s say during the boom years 2005-2007, available stock was 1 million properties sold per year x time on market three months = 250,000 “pent up supply”.

    So in two years, stock has built up by somewhere around 400,000 (from Method One) and 375,000 (Method Two), which would take FTB’s ten years to by up, even if not another single property came up for sale in ten years.

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  • mark wadsworth says:

    @ UT, well spotted. The Metro article refers to 38,000 “approvals” which might be meaningless. But if PHD’s chart also says just under 40,000 mortgages for home purchases (so that might just be approvals as well) in which case … er … I’m not sure now.

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  • Excellent work with the numbers guy’s – the latest releases talk about mortgage approvals which in my book means that the lender has vetted the application and then its gone to offer stage – not all of these approvals will get to completion stage – I’d estimate a 20% drop off rate.

    This from todays mortgagestragegy which might give you a few more stats to work with :-

    The number of house purchase approvals from high street banks in August has soared 81% from the same time last year, figures from the British Bankers’ Association show.

    There were 38,095 mortgages approved in August by the major banks, slightly lower than the levels seen in July.
    But the latest figures are a massive improvement from the 21,001 house purchase approvals seen last August, prior to the onset of the financial crisis.

    Remortgage approval levels continued their decline into August, with 26,124 remortgages approved last month.

    This represents a 47% decline from the 49,687 remortgage cases approved in August 2008.

    House purchase loans accounted for £5.2bn of lending last month out of a total of £8.6bn in gross mortgage lending.

    Gross mortgage lending has averaged advances of £8.4bn over the last six months.

    David Dooks, statistics director at the BBA, says: “The main high street banks’ mortgage lending has stabilised in a market where other lenders are largely inactive.

    “Loans approved for house purchase have recovered to early 2008 levels, but low
    levels of customer demand and a limited number of properties coming onto the market will continue to moderate lending.

    “In reaction to the economic conditions, consumers appear to be building up their
    savings and controlling their appetite for unsecured borrowing.”

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  • cynicalsoothsayer says:

    is there any corroboration of this theory on ‘for sale’ websites, say Rightmove listing numbers?

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  • The two plots (from BBA and BBC) @6&14 both show approvals for house purchase (BBA’s show mew and re-mortgage as well).

    The BBC decided to only show the last year of data for mortgages approved for purchase, showing the numbers rising.

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  • Percentages should be ignored.
    Last Junuary I held £100,000 worth of shares in a UK Company, in February they fell in value by 90%, but in March they went up by 200%. Should I be happy ?? I’ve only lost £70,000.

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  • mark wadsworth says:

    @ Cynical Soothsayer, I refer you to my worked example of Uncle Tom’s patented “how long is time on market?” system. He and I may not agree on policies but you can’t argue with facts.

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  • cynicalsoothsayer says:

    @MW, your worked example(TM) does a small area, how about the whole country? Rightmove sez “Demand pulls ahead of supply as stock dwindles”, is this rubbish even by their own figures?

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  • Rightmove also says they have more than 650,000 houses for sale… they need to define the word “demand”. I’d like to buy but I’m not going to!

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  • Just a quick note about phd’s bar chart..

    Historically the August figure has tended to trump the July one, when the market was buoyant. The weather this summer has been fairly conducive to house hunting – not too many barbecues or days too hot to do anything..

    .. is this the end of the ‘summer of delusion’ ?

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  • Mark Wadsworth says:

    @ Timmy T, well spotted. So my magic fag packet which guesstimated 625,000 “properties for sale” hasn’t lost it’s … er… magic. And we can add on a fair few that aren’t on Rightmove, let’s call it 700,000. Which is enough for 15 months’ worth of sales, even if not a single new property came on to the market in the meantime.

    @ CS, there’s your answer.

    @ UT, yes.

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  • UT, yes I agree, the Autumn has come early, but not the Autumnal house hunter…. you could very well be right!

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  • “the summer of delusion” – well put UT.

    I’ve looked at a few houses recently – just to see what the agents tell you compared to what intelligence I’ve done over 2 years of watching prices and houses in my area.

    We’ve also had 2 expensive colour flyers telling us the worst is behind us. I expect this kind of junk mail in Spring – the fact it’s October in a week tells me the agents can’t live on for much longer. Noone looks in November so it’s a case of “now or never”.

    @31 Timmy. They also need to understand “supply”. How many houses are there less than 3 months on their books compared to this figure 2 years ago.

    Their offer is stagnant, the finances stagnant and only premium properties in the £2m upwards area is “moving” – and that because people must be getting the jitters about the equity market

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  • mark wadsworth says:

    @ Growler, “How many houses are there less than 3 months on their books compared to this figure 2 years ago.”

    It must be “about” 400,000 more on their books that have been on-market for more than three months, see my comment at 2.24.

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  • growler – Their offer is stagnant, the finances stagnant and only premium properties in the £2m upwards area is “moving”
    And what impact is this having on house price data!!

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  • @titaniccaptain (Wednesday, September 23, 2009 02:46PM) – 2 things strike me on the poiint you highlight which are (1) unsecured lending is more difficult to obtain (2) people have a higher propensity to save in a recession/times of uncertainty

    This however just in from todays FT (which backs up my continual stance on affordability ultimately winning the day) – “Research from Royal London Group subsidiary Bright Grey showed 12m UK consumers were now “struggling to cope with essential monthly bills”, which now accounted for 68 per cent of household income”

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  • titaniccaptain – “making the notion of saving in this recession/depression a little absurd” – agreed for the majority as household debt is significantly higher in real terms than it was in the last recession of the early 90’s – anyone saving at the mo is (IMO) going to need a big inflation proofed plan

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  • UT / MW…

    Watch out for double counting properties for sale when using property portals as data sources though.
    One could be counting:
    HousesForSale * AverageAgentsPerHouse

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  • @39 jack c:

    And that “inflation proofed plan” will lure people into properdee. You can see the EA patter when we do get inflation how a house will be marketed as a way to achieve inflation protection.

    The interesting thing will be how other countries do: international interest rate spreads and foreign capital project equities

    We coudl see an exodus of capital out of UK and exchange controls very hard to avoid if the rats start running

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  • Aug09 38,095
    Aug08 21,001
    Aug07 57,589
    Aug06 68,044
    Aug05 65,796
    Aug04 64,309
    Aug03 83,502
    Aug02 78,356
    Aug01 85,865
    Aug00 53,379
    Aug99 59,001
    Aug98 55,301
    So agreed mortgage approvals 81% higher than a year ago… or 35% than 10 years ago or 55% lower than 8 years ago… take your pick! Looking back to 2000-2001, I think we all know that this is when BTL went crazy and the bubble, began. I actually think these figures are a sign that we are around 20-25% away (ie around the 50-60k mark) from the volume of mortgages to sustain a sustainable market, where we should get to once banks have repaired their balance sheets.

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  • To wrap up, I think it is fair to state that the constraints and high interest rates facing FTB’s, coupled to uncertainties in the market and fewer employment opportunities for migrants; mean that the supply side of the market is clearly well ahead of demand, and that talk of shortages is mischievous.

    If you look back over the years, there has always been a favourite investment sucking in funds, even during periods of recession.

    After the dot.com bubble, equities went firmly out of fashion, and everyone piled into property. That has now gone badly wrong, and after a brief dive for the safety of bonds, the punters are rooting for equities again.

    In the US, the coffee has been amelt and real estate is now a dirty word, but in the UK we have had a brief period where some mugs have been backing the wrong horse.

    The equity boom won’t last forever, but it is not likely to burst until it either overheats dramatically, or something else comes along to tempt the punters.

    Investment fads tend to fix on an asset class that has been steadily and quietly plodding forward for a while, where sound but modest gains have been recorded, and the potential for much greater gains presents a carrot.

    I’m struggling to see anything at the moment that is likely to prove the ‘next big thing’, although I would not be surprised if there was renewed interest in antiques and art.

    Every crystal ball is cloudy, but I think the odds are on the current enthusiasm for UK property drying up, and the appearance of less reassuring headlines as we head toward Xmas.

    I doubt the equity market will suddenly turn bearish, simply because there’s nothing attractive to switch into..

    .. so I’m not selling – yet, anyway..!

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  • simply manipulation of numbers:

    181% x 0 = 0

    FTB down by 17% (FTB figures at an all time low)

    The only mortgages being approved are those with high deposits and huge amounts of equity = hardly anyone but it pushes the overall % upwards

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  • Knitting_round_the_guillotine says:

    Hi.
    Are all the 36000 per month coming on the market for sale, or are any being mothballed or put up for rent by the estate/surviving family?

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