Lending up 7% in October

Latest CML data has revealed that gross mortgage lending totalled an estimated £18.7 billion in October, almost 7% higher than September’s £17.5 billion figure.

The monthly total was 44% lower than gross mortgage lending of £33.4 billion in October 2007.

CML director general Michael Coogan said: “While lending in October ticked up from a low figure in the preceding month, the outlook is one of continuing weakness for housing and mortgage markets in the coming months, despite the Bank rate cuts in October and November.

“Consumer confidence is now being affected by the worsening economic outlook. However, any recovery in lending is also being held back by the continuing shortage of mortgage funding. The government should therefore publish the delayed Crosby review as part of the forthcoming pre-Budget report and announce concrete steps that will enable and encourage firms to increase mortgage loans.”

FSA bans broker for life assurance fraud

The FSA has banned Peter King and his Bournemouth-based firm New Forest Mortgage Company Ltd for knowingly submitting applications for fraudulent life assurance policies.

The regulator found that, since June 2007, King submitted applications for 39 fraudulent life assurance policies – 30 of which were in the names of applicants whose personal details were either wrong or who knew nothing about the applications – in order to benefit from commission payments in excess of £250,000.

King, the sole director of New Forest Mortgage Company, admitted that his plan was to submit the policies, claim the commission and use the money to settle substantial outstanding debts.

Margaret Cole, FSA director of enforcement, said: “Peter King acted dishonestly and without integrity and posed a risk to consumers and to confidence in the financial system as a whole. The FSA will not hesitate to take action against individuals or firms who break our rules and put customers at risk of fraud.”

Largest quarterly fall in Scotland for 16 years

Scottish house prices fell in the latest quarter, according to the latest Scottish House Price Monitor from Lloyds TSB Scotland.

In the three months to 31 October, the quarterly price index for the average domestic property in Scotland fell by 4% to give an average mix adjusted Scottish house price of £165,398. This is the largest quarterly fall in the 16-year history of the House Price Monitor.

On an annual basis, Scottish house prices have still risen by 4.9%, but this figure is significantly down on the 9.3% reported in the previous edition of the House Price Monitor.

The number of house purchase transactions within the Scottish House Price Monitor has fallen by 43% on the same period last year.

The market is becoming more differentiated with Glasgow reporting a quarterly rise while Edinburgh, Dundee and Aberdeen all show falls in the quarter. Outside the main cities, the South East excluding Edinburgh reports a modest quarterly rise while the other areas are all showing quarterly falls.

Turning to property types, flats continue to show the most robust performance, with a quarterly fall of 1.1% and an underlying annual increase of 4.7%. The sales of these lower priced properties continue to hold up well and offer some explanation for the quarterly rise in Glasgow prices. Prices of detached houses fell by 5.6% in the quarter while prices of semi-detached properties fell by 3.5%.

Professor Donald MacRae, chief economist, Lloyds TSB Scotland, said: “The Scottish economy is entering a significant slowdown with rising claimant unemployment and falling consumer confidence. The number of housing transactions has declined markedly since one year ago and the market is adjusting to lower prices and sales.

“Although the number of mortgage products has declined, the cost of borrowing has reduced for many mortgage holders with the latest fall in interest rates in early November. So far, the Scottish housing market is showing sensible adjustment rather than a precipitous collapse.

LibDems fear 0% interest rates

After the Bank of England predicted yesterday that inflation could fall below 1% next year, the Liberal Democrats fear that we could be heading for zero interest rates, coupled with rising unemployment.

Liberal Democrat Shadow Chancellor, Vince Cable said: “It’s clear from the today’s figures that we’re heading for very high levels of unemployment with falling inflation. This could soon become negative inflation, with prices actually falling.

“The Governor of the Bank of England is right to say that interest rates will fall a lot further. We may find ourselves in a world of zero interest rates before too long.

“The actions we have urged, including drastic interest rate and tax cuts, now attract wide political support. However, the key problem is that despite the Government’s recapitalisation of the banks, the financial system is still completely gummed up.

“Ministers must consider more drastic action to ensure that credit flows on reasonable terms to solvent borrowers.”

Banks’ small business lending to be monitored

Business Secretary Peter Mandelson has announced the creation of a new panel to monitor how banks are lending to small businesses.

The five major high street banks reached an agreement with the government to provide data on the availability, risk and overall cost of lending to small and medium sized businesses at the first meeting of the Small Business Finance Forum.

Detailed talks will now be held with each of the banks to reach individual agreements on the provision of data to the panel.

The monitoring panel will be made up of senior Department for Business and Treasury officials and representatives from the Bank of England. It will monitor and enter into a constructive dialogue with individual lenders on the availability, risk and overall cost of SME lending.

The Forum also secured an agreement from the British Bankers’ Association to work with Small Business organisations to fundamentally revise the Statement of Principles which set out how banks and businesses work together.

Business secretary Peter Mandelson said: “It is critical we understand what finance is available for small businesses and this monitoring panel will give us greater insight into the situation at ground level.

“The panel, together with the revised Statement of Principles, shows a commitment to making progress on resolving the credit issues faced by small businesses.

“I want this Forum to make a difference. We have opened up a dialogue between SMEs and banks, and we will continue to work together to make sure we have the resources in place to see UK plc through this difficult economic climate.”

Banks, businesses and government also discussed the need to increase awareness of the support and information available to help companies to manage cashflow.

Consultations with business and finance organisations revealed a number of companies feel they do not have access to the right advice they need on financial management.

The Government, in partnership with the Institute of Credit Management, has produced a series of basic guides designed to provide this support direct to businesses. Forum members will now promote the guides over the next few months.

The Forum’s Terms of Reference and membership were also agreed at the meeting.

AMI paints a bleak remortgage picture

Remortgage business could diminish further in 2009 as borrowers are forced to stay on their lenders’ SVRs until LTVs come down, the Association of Mortgage Intermediaries warns.

AMI’s latest Quarterly economic bulletin says brokers may find borrowers impossible to place with lenders until LTVs come down.

It says: “This means less business for brokers who will find these borrowers untouchable by other lenders until they are out of negative equity.”

AMI says that although the multibillion pound government recapitalisation and bank nationalisation plans were necessary, they won’t be sufficient to allow borrowing between banks and lending to corporate and retail customers to begin again.

More worryingly, it says that demand for credit has now ebbed away so the prospect of improved supply is immaterial.

It has also scrapped its previous predictions of £55bn of net lending in 2008 and reduced it to between £38bn and £43bn.

The International Monetary Fund echoes AMI’s outlook and warns that the UK faces its most severe economic downturn since the recession in the early 1990s.

In its latest biannual World economic outlook report, the IMF predicts the UK will be the worst hit of the world’s leading economies due to ongoing financial turmoil and falling house prices.

Men saving cash by staying single

Almost half of all Britain’s single men admit that the key to saving money is staying relationship-free. In fact, latest research from Skipton indicates that 90% said they’d avoid romantic commitments altogether because of the economic downturn.

Additional research conducted by YouGov asked more than 2,400 British adults what effect being in a relationship had on their finances.

Nearly half (47%) of all single men surveyed admitted that they would spend more money than they currently do if they were to enter into a relationship.

Out of those surveyed, two-fifths of those in a relationship claimed to researchers that their partner was a spender rather than a saver; this rose to nearly half (49%) in the South East.

Jason Clarke, head of PR at Skipton Building Society, said: “We’re noting a real view amongst men that the single life is the cheaper life! In these results men certainly take the view that having a partner comes at a financial cost. So perhaps single girls should be avoiding bars and heading for the building society to meet an eligible bachelor!”

16% of men in Wales admitted to saving more than they spend, compared to the West Midlands, which came out bottom at just 9%.

However, 71% of women questioned confessed they still spent more on non-essentials than they saved, despite the gloomy financial climate.

When asked which family member they thought they had inherited their spending patterns from, nearly 30% of women said it was their mother…

Three-month LIBOR falls 1%

Three-month LIBOR has fallen by over 1% to 4.49% on the back of the Bank of England’s decision to reduce the interest rate to 3% yesterday.

On Monday three-month LIBOR was set at 5.77% and on Thursday it was set at 5.56%. Sterling LIBOR is set by the British Bankers’ Association at noon from Monday to Friday and is based on rates being offered by 16 contributing institutions.

Many in the industry were concerned that unless interbank funding rates headed the same way as the base rate, it would do little to alleviate borrowing costs.

But the Bank of England Monetary Policy Committee’s decision to reduce rates 1.5% has clearly had an impact.

Jonathan Cornell, managing director of Hamptons Mortgages, says: “It definitely should make a difference. LIBOR is still around 1.5% over base and with three month LIBOR at this level gives lenders decent scope to price up tracker rates.

“But it’s a big fall and borrowers will benefit from lower rates in the coming month.

“Lenders realise if they stop lending totally and price themselves out of the market losses and repossessions will be higher.

“The quicker they roll up their sleeves and start lending sensibly the quicker the market will recover.”

Bank of England slashes interest rates by 1.5%

The Bank of England has slashed interest rates by a further 1.5% to boost Britain’s ailing economy. Following an emergency 0.5% cut in October, the Bank’s Monetary Policy Committee (MPC) has taken drastic action again as its focus switches from inflation to recession.

Britain’s basic rate of interest now stands at 3%, but it is unclear how much impact this will have for households and businesses.

The Council of Mortgage Lenders (CML) has already said its members are unlikely to pass on the rate cut to borrowers.

In a statement issued last night, the CML said: “It is important to allow for the fact that in the post-credit crunch environment, where Government and regulators expect lenders to operate lower-risk and higher-capital lending businesses, the pricing of mortgages relative to benchmark rates is highly unlikely to return to the very narrow margins of the pre-crunch era.

“And lenders will need to take account of the possibility of higher provisioning and losses in an environment of higher arrears and possessions. A decision not to follow a base rate reduction does not imply that the lender is ‘profiteering’.”

Further cuts are expected in the coming months, and some economists believe the MPC may reduce rate as low as 0% to try and stimulate the economy and reduce the effects of recession.

Halifax sees major improvement in housing affordability

House prices fell by 2.2% in October, according to the latest Halifax House Price Index.

House prices in October were 13.7% lower on an annual basis. The UK average price has returned to the level in October 2005 (£168,031).

House price to earnings ratio – a key affordability measure – is improving significantly. The house price to average earnings ratio has fallen by 16% from a peak of 5.84 in July 2007 to 4.92 in August 2008. This is the first time that the ratio has been below 5.0 for four and a half years (4.99 in February 2004). Halifax expects a further improvement in the ratio as prices continue to soften. The long-term average is 4.0.

The UK average house price is 22% higher than five years ago. The average price stood at £138,208 in October 2003; nearly £30,000 lower than today.

Housing market activity shows signs of stabilising. The number of mortgages approved to finance house purchase was broadly unchanged in September for a third successive month, at a seasonally adjusted 33,000 compared to 32,000 in August. Approvals in 2008 Quarter 3, however, were 25% lower than in 2008 Quarter 2.

Martin Ellis, chief economist, said: “House prices declined by 2.2% in October. Housing market conditions remain challenging in the face of the significant pressures on householders’ incomes and the reduction in the availability of mortgage finance since last summer.

“But housing affordability is improving significantly. The house price to average earnings ratio has fallen below 5.0 for the first time for four and a half years. We expect a further improvement in the ratio over the coming months.”