Gross Mortgage Lending

This graph shows the sharp decline in mortgage lending since the onset of the credit crunch.

Banks have been unable or unwilling to lend because:

Falling house prices mean there is greater risk of negative equity. Therefore banks have been requiring higher deposits making it more difficult for people to buy a house

Lack of funds. Many of the big 4 banks have had to write off substantial bad debts resulting from the credit crunch and subprime mortgage fiasco. Even despite quantitative easing, banks have been unwilling to lend.

Lack of willing homebuyers. Although interest rates of 0.5% make buying a mortgage attractive, homeowners have been put off buying a house because of the scale of the recession and the high levels of unemployment.

The low levels of mortgage lending have led to low levels of activity in the housing market.

Future Mortgage Lending

As house prices stabilise, we are likely to see a rise in future mortgage lending, as banks reduce the deposit required.

Also, economic recovery would reduce the amount of mortgage arrears and increase confidence of consumers to buy a house. However, unemployment is likely to lag behind economic growth so this could take a while to occur.