‘Three-year wait’ for easier lending access

Potential homebuyers are likely to have to wait until 2014 before it becomes easier to get a mortgage.

Market analyst Datamonitor said mortgages looked set to continue being rationed during 2011 as lenders still faced problems raising funds.

The group said that while it does not expect the market to decline any further during the coming year, it is unlikely that there will be any significant growth in lending levels until 2014.

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Mortgage advances have dived steeply since the credit crunch hit, dropping by more than 60 per cent since the market peaked in 2007, as lenders struggled to raise the money they needed to back new loans.

The shortage of funds led to banks and building societies ‘cherry picking’ the best customers, typically reserving their best rates for people who represented a lower risk due to the high levels of equity they held in their property.

Datamonitor said consumer demand remained low, as people put off buying a home until the outlook for the property market and wider economy was clearer or until they had raised a big enough deposit, while low interest rates reduced people’s appetite to remortgage.

But despite this, it said the main factor holding back growth in the market was a shortage of funds as lenders continued to rely on savers’ deposits to back the bulk of their mortgage advances.

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Daoud Fakhri, an analyst at Datamonitor, said: “Although we’re expecting the mortgage market to make gains this year for the first time since the banking crisis, it will be very marginal, with gross lending rising from £136.2bn in 2010 to just £138bn.

“The market has a long way to go, as the initial feeling in 2010 was that gross lending would grow to around £150bn, but instead it fell.

“We now predict that the market won’t reach £150bn until 2013 at the earliest, with significant growth in 2014 when we expect it to reach £170bn.”

The group said it did not expect the wholesale funding market to recover significantly in the medium term, while the winding down of Government support schemes and tougher capital requirements were also likely to restrict lending levels.

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It added that the residential mortgage-backed securities market, under which lenders sell on mortgages to investors and which was a key factor driving lending growth before the credit crunch, may never return to its previous levels.

But lending is expected to pick up in 2014 as the general economic situation improves, and demand from people remortgaging increases following hikes to the Bank of England base rate.

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