Half Truths

Weak mortgage lending is far from being all bad news

Banks and mortgage lenders will be disappointed to learn that Britons borrowed less to buy houses in November than in any month since July 2005. So will many homeowners. It suggests that recent falls in the price of houses may continue. It indicates that consumer confidence is waning, and adds to concerns about the financial outlook. Much of the British economy is dependent on spending by individuals. If homeowners feel poorer, the impact may be felt widely. Bank of England data yesterday certainly showed homeowners much less eager to dig into accumulated equity in their properties. That stems the flow of cash that provides fuel for all sort of livelihoods.

The Times - December 28, 2007

It would be a mistake, however, to assume that the numbers are universally depressing. There may be at least as many people pleased by such “weakness” as there are those who are distressed. Those worried about the strains on banks and other financial institutions caused by the credit crunch may be relieved. By lending less, banks reduce the risk of incurring losses in the event that some loans turn sour. It suggests that individuals and institutions are becoming more cautious about debt. This is good in itself, and more so in in the context of fears that the housing market is a bubble inflating to bursting point. Evidence provided by yesterday’s mortgage lending numbers suggests that the pressure is being gently released. House prices, so far at least, are slipping, not collapsing - full article