Mortgage lending hits eight-year low in February

Mar 20 2009 by Alun Thorne, Birmingham Post

Mortgage lending dived by 60 per cent to an eight-year low during February as the credit crunch continued to strangle the market.

A total of £9.9 billion was advanced during the month, the lowest figure since February 2001 and nearly two-thirds below the level lent 12 months ago, the Council of Mortgage Lenders said.

It warned that the ability of banks and building societies to lend was being hit by consumers opting to hold their money with the Government-backed National Savings and Investments.

The group said lenders were increasingly reliant on using the cash consumers deposited with them to fund their mortgage advances, but that money was being sucked away into National Savings and Investments (NS&I).

NS&I said earlier this month that it had received record levels of deposits during the final quarter of last year as consumers looked for a safe haven for their cash.

The group, which has a 100 per cent Government guarantee, said £9.55 billion was saved with it during the three months to the end of December, two-and-a-half times more than during the same period of the previous year.

But the CML warned that this flow of funds away from banks and building societies was constraining their ability to lend.

Michael Coogan, director general of the CML, said: “Retail savings are now the predominant source of funding for mortgages.

“But banks and building societies have seen savings ebb away to National Savings and Investments, which has a negative impact on their ability to lend. This is yet another example of fractured policy. There are now fewer active lenders in the market, but the Government wants them to lend more. At the same time, the Government’s own savings institution is sucking away the funds that would enable them to do so. Until funding improves, the capacity of lenders to lend will remain constrained.”

The CML said February was typically the weakest month for mortgage completions.