Mortgage Lending Takes a Dive

High Street banks encountered stinging criticism when it was revealed that they have cut mortgage lending by an astonishing 90% from its peak in 2007. Many politicians and citizens are outright accusing them of hobbling the housing market, since home prices continue to rise but access to credit is nearly nonexistent.

The situation is particularly frustrating for first time homebuyers who cannot secure a loan and are forced to pass up attractive deals for hotels in London. How bad is it? The peak for mortgage lending occurred in the first quarter of 2007 when banks lent 28 billion pounds. Last quarter, banks doled out a paltry 3.7 billion pounds.

The argument for forcing the banks to lend more money is quite simple. When they were struggling and in need of a bailout, the government came to their aid and paid them with the people's pounds. But now that they are up and running again, they seem to have no desire to repay the favour. They appear content to hedge their bets and deny loans to qualified applicants.

On the other hand, the banks contend that the mortgage market is still rather risky and that they do not want to repeat the mistakes of the past. They have also noted that demand is currently quite low and that obtaining a mortgage loan is not as difficult as many critics claim.

Which side is correct? It appears to us as if both sides have a compelling case. Yes, demand for housing is down, but mortgage lending has clearly fallen faster. This is especially true in the commercial market where banks remain reluctant to lend money to anyone who is interested in opening a business in this uncertain economy.

Home