Sir James Crosby, a former chief executive of HBOS, told ministers that for the first time since records began, banks and building societies are likely to take in more in mortgage repayments next year than they give out in new loans. Such negative net lending could push house prices into a new “self-feeding” downward phase, he said.
This development is said to warrant even the possible nationalisation of all the banks. Certainly, it\’s being used as an argument that banks must open up their books to the Government.
However, I\’m not sure that there\’s actually anything odd here at all.
Imagine that the banks were funding exactly the same number of mortgages this year as they were last (they\’re not, we know, but just imagine). House prices are steeply down this year from last. Imagine that this drop was 10%.
OK, so last year the banks financed (imagine) 100,000 transactions at £100,000 each. That\’s £10 billion isn\’t it? (or is it 100 billion….not very mathematical this morning). Prices have fallen so now they\’re financing 100,000 transactions at £90,000….meaning that there\’s been a fall in mortgage lending but no fall in market activity.
No, I know this isn\’t what is actually happening….but it is part of what is happening. The volume of money lent on mortgages has, in part, fallen simply because house prices hjave fallen.