No longer safe as houses?

More pain ahead for the property market

Latest figures released by the Bank of England have shown that mortgage approvals in April dropped to their lowest level since records began in 1993. The reduction in lending is likely to cause more problems in the housing market, with Morgan Stanley predicting that house prices will fall 10% by the end of 2012.

Not only is this bad news for homeowners, but it may also start to cause further problems in the beleagured banking sector. Many banks are still massively exposed to moves in house prices, due to mortgage deals arranged during the last decade. In particular, The Telegraph reported that Lloyds TSB may be hard hit, with up to one quarter of its mortgage customers in negative equity by 2012. Analysts suggested that this could mean that mortgages totalling up to £90 billion were potentially affected, at this one bank alone.

However, as always, statistics can tell a thousand different stories and the Council of Mortgage Lenders issued a prediction that ‘net’ mortgage lending (stripping out redemptions and repayments) would actually rise during 2011 to £9 billion, up from £8 billion last year. This may sound like a lot of money, certainly enough to keep the current Mrs Moorhead in the manner to which she would like to become accustomed. But in 2006, the last year that mortgage lending rose, the total lending was £110 billion. That’s right, £110 billion. So we are currently running at about 8.2% of 2006 mortgage lending levels. No wonder the housing market is in the doldrums, but also no wonder that so many homeowners, and banks, found themselves in seriously deep water.

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