Mortgage funds to rise significantly, Bank of England says

Nationwide's chief economist Robert Gardner says that weak buyer confidence will hold back demand

The supply of mortgage funds will be increased "significantly" by the Funding for Lending Scheme (FLS), says the Bank of England.

A survey of lenders by the Bank reports that lending picked up in the last three months of 2012, and will continue to do so in the coming months.

Separately, the Nationwide building society said that house prices fell by 1% in 2012.

And it predicted little change in either prices or sales this year.

The building society said that the average UK property was valued at £162,262 at the end of 2012, following a 0.1% drop in December.

Gaining momentum

The Bank of England's Credit Conditions Survey found that the Funding for Lending Scheme, launched at the start of August 2012, was now helping to increase the flow of money to borrowers.

The aim of the scheme is to channel as much as £60bn of cheap money to lenders, on condition that they then lend it to households, and to companies outside the financial sector.

An initial report on the scheme, published by the Bank in early December, found that lending to households and businesses increased only slightly in the third quarter of the year, as the new scheme got under way.

Since then, its effect has grown stronger.

In its survey, the Bank said: "In the three months to mid-December, lenders reported a significant increase in the amount of credit made available to the secured household and corporate sectors, and a slight increase in the availability of unsecured credit to households.

"The Funding for Lending Scheme was widely cited as contributing towards the increase in secured and corporate credit availability.

"Lenders expected a further increase in the availability of credit to all sectors over the coming quarter," the Bank added.

However, lenders said they would still continue to be very fussy about which customers they would chose to lend money.

"Some lenders expected to tighten credit scoring criteria slightly, reflecting their desire to ensure that any increase in lending would adhere to [their] risk appetite," the Bank said.

The British Bankers' Association said: "This encouraging survey... provides further evidence the Funding for Lending Scheme is having a positive impact and the participating banks are successfully passing on the benefits through cheaper finance."

London bubble

The Nationwide, in its more downbeat report, said buyers were still nervous about the economy, and a lack of mortgage availability meant there was relatively little housing market activity during 2012.

The 1% drop in prices last year reversed a 1% average price increase in 2011, it said.

However, the average price masked significant differences in property price changes in the different nations and regions of the UK.

For example, prices were 0.7% higher in London at the end of 2012 compared with a year earlier but dropped 8.2% over the same period in Northern Ireland.

The figures are based on the Nationwide's own mortgage data, and show less of a bubble in the capital than Land Registry figures released on Wednesday which indicated house prices in London had risen by 7% in the year to the end of October.

Outlook

The Nationwide said that conditions in the housing market remained "fragile", despite positive jobs news, with wages growing more slowly than the cost of living.

Price changes in 2012

  • England: down 0.4%
  • Wales: down 2.7%
  • Scotland: down 3.3%
  • Northern Ireland: down 8.2%

Source: Nationwide building society

"The uncertain outlook for the wider economy is also likely to have kept many potential buyers on the sidelines, unwilling to make a major financial commitment until they feel more optimistic about the future," said Robert Gardner, the Nationwide's chief economist.

He said the reason that prices had remained "relatively resilient" in the circumstances, and had not dropped further, was that low interest rates had meant mortgages had remained affordable for many people.

This meant that people under financial pressure had not been forced to sell up, which would have increased supply and led to prices falling.

Mr Gardner predicted that activity would remain low in 2013, and prices would remain the same or dropping slightly throughout the year.

There have been slightly more optimistic forecasts from the Council of Mortgage Lenders (CML) and the Royal Institution of Chartered Surveyors (Rics), who have both predicted a modest rise in sales for 2013.

Completed sales were 6% higher during 2012 than they were the year before, according to figures from HM Revenue & Customs.

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