THIS column has been quite gloomy about Britain’s prospects in recent months, and will be even more so for the remainder of this Budget week. So here is a positive story for a change: it is clear that credit is becoming steadily more available, albeit at a higher price than in the bad old days. Alistair Darling will make a song and dance about forcing RBS and Lloyds to lend on Wednesday; but he needn’t bother.
When the financial crisis hit, the mortgage market shrunk precipitously. The number of mortgages fell to a low of 1,209 on 1 April 2009. Since then, availability has steadily risen again, hitting 2,053 last week, according to Moneyfacts. The number of mortgages has increased by 28 per cent in just the last three months. There are now 13 mortgages on offer with a loan-to-value of 95 per cent, up from only three a year ago; and 152 with a loan to value of 90 per cent.
While we will fortunately not be returning to the crazed excesses of the past, the banking system is no longer bust; it is recovering, albeit slowly. Many risks remain that could once again wreak the system – another house price crash, a commercial property implosion or a sovereign debt crisis – but the financial infrastructure in a better shape than at any time since the onset of the crisis. For all our immense problems, we are not another Japan.
One reason why everybody has become excessively gloomy about credit is the way the figures are produced. The “lending” data in fact refers to the outstanding stock of debt in the economy. Because households and firms have correctly opted to pay down their excessive debt, the “net lending” stats have been falling or growing slowly. This hides the fact that gross lending has often held up – but that debt repayment has risen even faster.
The average spread – the difference between the cost of funds to the bank and the price at which the money is lent out – on a 75 per cent loan to value floating rate mortgages has edged down to 2.95 per cent in February from 3.34 per cent last August, according to an analysis of Bank of England figures by Citigroup.
The trend to lower spreads is not uniform. The average spread on 95 per cent mortgages has risen since last August. Yet this also makes sense: there is a renewed risk of another house price decline, which means that lenders are correctly pricing in risk for their low-deposit products.
Even better news is that the average approval rate on applications for new loan facilities by small and medium-sized businesses (SMEs) has risen to 76 per cent in January – similar to early 2008 levels – from the low of 60 per cent last May, according to figures from Citigroup. Interest rates are steep, however: the rate on new variable rate facilities for small firms has risen to 4.25 per cent in January from a low of 3.73 per cent last July, a bigger rise than seen among medium-sized firms. But the money is there for those able to pay for it.
It is harder to borrow today than it was during the bubble. Risk is being assessed more sensibly; banks are holding greater amounts of capital and trying to finance more of their lending from deposits, rather than by borrowing. All of this means that the costs of raising finance will be permanently higher. But if what we now have is a calmer, pricier credit market that actually works and doesn’t blow up every five minutes, then perhaps we shouldn’t complain too much.