We do not believe, however, that the figures show any significant new movement in direction. The reality is that mortgage lending is still subdued and is likely to remain so in the coming months.
At the end of last month, the Bank reported net secured lending in December of £1.9 billion, compared with £0.8 billion in November. Although this represents a doubling of net lending, the way in which this was interpreted by some commentators created a false impression of what is happening in the market.
First, even at £1.9 billion a month, net lending remains extremely low by historical standards. Only a little more than a year ago, net lending regularly exceeded £9 billion a month. So, monthly net lending of less than £2 billion in a month now indicates a very subdued mortgage market. It equates to annual net lending of £24 billion. By comparison, net lending totalled £108 billion in 2007.
Second, a clearer picture emerges if we look at net lending over a longer period, say, three months. The Bank reported net lending of £3.6 billion in the final quarter of last year. That is, of course, still a very low figure compared to those regularly monthly totals of £9 billion a little over a year ago. In fact, net lending of £3.6 billion in the final three months of 2008 is the lowest quarterly total since 1995.
Third, relatively small movements in monthly net lending totals produce an exaggerated effect in percentage terms when net lending is close to zero. So, media reports of a doubling of net lending in December – although accurate – do not indicate a significant change in mortgage and housing markets. The data simply shows that net lending is holding up – at a very low level.
In any case, monthly fluctuations in net lending are common. The measures announced early this year by the tripartite authorities means that the tools are now in place to create more liquidity and wider availability of credit over time. We will, however, need to see an improvement in lending figures over a number of months before we can say that we have reached a turning point in credit markets.
Reports by individual lenders of higher net lending can also give a misleading impression of what is happening in the market more widely. A small number of firms have reported higher net lending recently, but for many others it has been sharply negative as they shrank their mortgage businesses in 2008. It will be many years before we see industry net lending returning to the levels we saw in 2007, and indeed our forecast is for negative net lending in 2009 as more loans are re-paid than new mortgages taken out.
