Ignoring the hype
SOFTWARE PROVIDER’S VIEW: By Paul Hunt is managing director of Phoebus Software
Newspapers and TV schedules are filled by programmes predicting that the West faces economic Armageddon.
From Robert Peston’s claim that the ‘Western banks and governments have lurched from catastrophe to crisis’ since the fall of Lehman’s to the perhaps less dramatic – but rather weightier – release this month of the ‘11 graphs of 2011’ which all highlighted how the UK’s economic position is likely to deteriorate in the coming months and years.
One of the perennial tensions between financial news and the media is that for consumers, economic news tends to be very boring. In order to maintain interest, consumer-focused economic news has either to exaggerate the size of the boom or the apocalyptic horror of the bust – there’s very little in between.
This has particular significance for the mortgage market, because the purchase of a mortgage is generally the most significant interaction an individual will ever have with a financial institution. As the summer of this year drew to a close, economic writers celebrated ultra-low mortgage rates.
By the time Leeds Building Society was offering the lowest ever 2-year fixed rate in October, headlines extolled the joy of borrowers tying themselves to ultra low rates and praised lenders for their willingness to make finance as affordable as possible.
However in December, as LIBOR moved above 1 per cent, the overarching message was one of fear that the early stages of a second credit crunch are already underway.
The rise in the interbank lending rate has caused columnists to worry that despite the dogged commitment of the MPC to a super-dovish monetary policy, we are on the brink of a mortgage collapse and the stalling of the housing market.
Above inflation tracker rate rises from Chelsea, Nationwide and ING have been cited as evidence of the beginning of a very destructive storm.
But a clear analysis of the growing strains on mortgage lenders’ liquidity and its true impact on lending paints a more benign picture.
It’s certainly true that the rise in LIBOR has, and will continue to, force mortgage lenders to increase their rates. But we are yet to see whether this has a significant impact on lending volumes.
The CML’s latest data shows annual gross lending grew for three consecutive months to October this year for the first time since 2007.
According to e.surv’s mortgage monitor, the average deposit shrunk to 38 per cent in November and lending conditions are at their loosest since Lehman’s collapse.
The bridging industry is growing too. The West One Bridging Index shows net lending in the bridging industry has expanded 53 per cent since the beginning of 2010.
Lending may still be relatively subdued, but far from suggesting a further shrinking in activity, the latest data is cause for optimism. That’s not to say that there’s no basis for being worried about the economic future – far from it.
But the schizophrenic narrative provided by the consumer press ignores the tangible positive steps lenders have taken to boost their activity in the last 12 months. A level-headed analysis of the current state of the lending market reveals an impressively healthy picture.
