The Truth about Mortgage Lending Statistic and Trends

From the desk of Sudeshna Choudhury

Monday 08 February 2009

When I set myself up to try to understand what  we could  learn from mortgage lending trends and statistics at this time of deep troubles (call it recession or depression depending on your mood) for the UK economy, I felt the  need to make it clear for me and my many property investors and landlord friends.

If you are a tenant right now, or  own a property or would like to buy one, there  is something you can take away too from this article, since your mortgage borrowing capacity is conditioned by the banks so read on with interest.

1.    Don’t always believe the media

I should start by saying “don’t always blame the newspaper!” Although I loathe the sensational headlines, newspapers are in the business of selling news.  And to sell news they need to capture our imagination by sensationalising current news topics.  I am not going as far as to say that there is no economic downturn, yes people are losing their jobs, companies are shutting downs, mortgage lending is scarcer, house prices are generally falling, etc…  But even with the constant bombardment of gloomy news could we say that it is more a matter of how do you see the water glass? Half full or half empty? That is up to you. This article helps you see  the half full view about mortgage lending trends and statistic.

Let me gives you some examples:

• On the 25 November 2008 The BBC News website titled: “Mortgage lending feels the strain“. They hammered home that the number of mortgages approved for house purchases was down 52%, lower than a year earlier. They even suggested that people were using their deposits to fund spending. Obviously these people never heard about buying a house on lease option or rent-to-buy which is a creative way, independent to the mortgage lending trends to get people’s foot on the UK Property Ladder.
• On 15 January 2009, they also titled
  “Mortgage lending still falling“. They cited the very well respected figures from the Council of Mortgage Lenders (CML) statistic which every journalist use and try to find something sensational to write about. But this time, they also noted that “First-time buyers had to put down an average deposit worth 18% of their property’s value, the largest for at least 35 years.” Again these first-time buyers don’t know enough that with a well structured lease option agreement they can “stage-buying” their home with less than 10% deposit. They actually can even try-before they buy. The glass is indeed half full!
• On 2 January 2009, Gary Duncan, Economics Editor of Times Online titled “Mortgage lending falls to new record low[F1] “…

  http://business.timesonline.co.uk/tol/business/economics/article5431904.ece

• http://business.timesonline.co.uk/tol/business/economics/article5522168.ece

• Hilary Osborne, from the guardian.co.uk, 21 January 2009: “Mortgage lending hits six-year low” that mentioned “new measures” that the government was taking to stimulate mortgage lending. However they heeded that mortgage borrowing depends on consumer confidence. One thing is sure, houses have become affordable again so every body knows that it is time to buy, only if you can afford it or know how to afford it with lease option purchasing ~ no jokes here.

• http://www.guardian.co.uk/money/2009/jan/21/mortgage-lending-figures

• During the same period, others media decided to play the optimistic card. 20 January 2009, James Daley, on independent.co.uk: “Rock set to boost mortgage lending“

• http://www.independent.co.uk/news/business/news/rock-set-to-boost-mortgage-lending-1451518.html[F2]

• “Mortgage lending rebounds in December 2008″, from the guardian, the same Hilary Osborne wrote this on 30 January 2009 nine days after her original article. Is it contradiction? Not necessarily, one day she can write on the long term trends, the next she writes on the recent month trends…This still does not explain why none of these writeabout the not so innovative why of stage-buying a house. This has been known in Australia, Canada, US, France but it is not the biggest trend in United Kingdom yet. However there is plenty of information about it.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/4305095/Mortgage-lending-drops-30-per-cent-to-six-year-low.html

2.    Always go back to the official statistic themselves

The 2009 edition of the statistics on Mortgage Lending, the Financial Services Authority, provided their trends and analysis.

http://www.fsa.gov.uk/Pages/Doing/Regulated/Returns/IRR/statistics/index.shtml

Although not the most accessible report, I prefer reading these so that I can have a calm and rational discussion with property investors and landlords. What I learned was that since the beginning of 2007, some 300 regulated mortgage lenders and administrators have been required to submit a Mortgage Lending & Administration Return (MLAR) each quarter. This is a way for the FSA to check their mortgage lending activities and get more reliable stats rather than sensational news.

This is what I learnt.  The FSA concluded from their Q3, 2008 report that:

• The total value of outstanding loans is £1,194bn, an increase of 5% compared to a year earlier. It is just that the banks are not lending as much or as fast as they use to. So people who are struggling to borrow again can look at lease option which gives them time to sort out their financial affairs.
• New lending peaked in Q3 2007 at £102bn before declining to £61bn in Q3 2008, leaving gross lending 15% lower in the quarter, and 41% lower than a year earlier.
• Significantly fewer new loans have an LTV of more than 90%, and Loans to borrowers with an impaired credit history represented 1.5% of new lending in Q3, compared to 3.5% a year earlier. Again lease option is the perfect tool to get those who want get their feet on the property ladder back into the market.

3.    It is possible to hedge property transactions against mortgage lending trends

Now I am not suggesting that you play apprentice financial wizardry here by using a term well known in the stock market and hedge funds.

Wikipedia (http://en.wikipedia.org/wiki/Hedge_(finance) gives an explanation that in finance, a hedge is a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market – usually, but not always, in the context of one’s commercial activity. Hedging is a strategy designed to minimize exposure to such business risks as a sharp contraction in demand for one’s inventory…

Applied to properties transactions, most home buyers are in the market of seeking an accommodation that suit their needs and that they can pass on to their heir. Landlords are in the market of making extra income and investors are in the market of capital gain.

With lease options it is possible to engineer property transactions that are fair whereby the buyer gets what they want and the landlord-investor also gets what he wants irrespective of the mortgage lending market.

Unfortunately the finance and speculative mentality that brought us the credit crunch and recession or possible depression are based on flawed models that in order for a few to gain, many must loose. Yet today the architects  of that model are now admitting that they’ve gone to far and that regulations and fairness must be brought to financial practices.

I am saying that nobody should be conditioned by the media, the estate agents or the government, that there is only  one way of buying a property i.e. get your deposit ready (these day a buyer needs anything from 10% to 40% depending on the mortgage lender) and then get a mortgage if the banks are kind enough to lend to you with (our bail out money) irrespective of your credit status.

4.    Recession brings innovation.

Using lease options for residential property transactions is a fairly new concept in the UK.   If are trying to get on the property ladder and are having difficulty getting a mortgage or coming up with a huge deposit, then visit http://www.ukpropertyladder.co.uk/tenantbuyers
If you’re an investor or landlord and would like to know how you can increase your buy-to-let cashflow (even if you currently have negative cashflow), or how to increase your capital gain even if you are in negative equity, then  visit http://www.assuredpositivecahsflow.com

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