Mortgage Loan Blog

From the moment that the house price bubble popped and the economy went into meltdown, each new release of mortgage lending figures has attracted enormous media attention. For a relatively unglamorous part of the financial mechanism, why are figures about mortgages so important?
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From the moment that the house price bubble popped and the economy went into meltdown, each new release of mortgage lending figures has attracted enormous media attention. For a relatively unglamorous part of the financial mechanism, why are figures about mortgages so important?

The answer is not straightforward. First of all, a large amount rests in the cause of the financial crisis in the first place, a ready supply of easy credit resulted in people taking out ever-increasingly large mortgages which drove up the value of our homes beyond a reasonable level. When people stopped being able to meet the demands of these mortgages (often because they’d borrowed too much) the system went into reverse, the market crashed, and bad mortgage loans froze up bank balance sheets.
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So, from this point of view, a recovery in mortgage lending suggests a recovery in the housing market, which is good for the finances of individuals, suggesting that they may have more capital to spend and stimulate the economy. Interestingly, mortgage lending is just about the only area in which reforms have been made. All over the world, to get a mortgage now, you need a much higher deposit, and in the UK the FSA is on the verge of outright banning self-certification mortgages (where you don’t need to prove how much you earn to get a mortgage).

More importantly to those who trade on the markets, whether that be through spread betting or direct investment, the mortgage lending figures reveal the amount of liquidity in the banking system. Whilst not absolutely true, if banks are lending to homeowners it suggests that their finances are flowing smoothly and that they’re accruing better balance sheets – and in turn, minimizing the percentage of their assets which are “bad” (essentially loans to people who can’t pay them). This in turn reflects good health in the financial system, which is good for everyone concerned.

Underneath these factors is another, more serious issue, each month the mortgage-lending figures also reveal how many people are in arrears, this figure is supposed to be falling as we continue the recovery. However, in the run up to the meltdown of 2008 Britain’s took some £50bn more out of the value of their homes than they have since paid in, this figure remains a time bomb waiting to go off, and the first sign of it will be if the number of people in arrears starts to rise.

Tradefair, and companies like them who offer advice to people who open spread betting accounts to trade on the financial markets, recommend that people should keep an eye on news that may affect their individual market. As demonstrated above, mortgages are central to the smooth running of the financial system, so it’s always worth keeping an eye on the monthly mortgage-lending figures.

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Tags: Mortgage, Mortgage Market