Opinion Former Article

BSA: Building society gross lending rises, but funding constraints will limit activity

Gross lending by building societies in July 2009 was £2.1 billion, the highest monthly figure this year, but 42% lower than the £3.6 billion lent in July 2008.

Commenting on the figures, Adrian Coles, Director-General of the Building Societies Association, said:

"The mortgage market continues to show signs of some sort of recovery when compared to the first few months of this year. However, activity remains very depressed when compared to previous periods.

"The BSA expects the mortgage market to remain similarly subdued over the remainder of 2009. This is primarily because of the difficulties all lenders face in raising funds for mortgage lending. We warned back in March, when Bank Rate was cut to its present level, that the flow of funds into the mortgage market would be restricted as savings inflows decline as a result of very low interest rates."

In the savings market, balances held in savings accounts with building societies reduced by £0.9 billion. This compares to an increase in balances of £1.9 billion in July 2008.

Adrian Coles said:

"Low interest rates, rising unemployment and weak earnings growth create an environment in which it is very difficult for deposit takers to attract funds. Across the market, savings flows are much lower than a year ago, and this trend is likely to continue. The BSA estimates that total UK savings balances might struggle to increase by £11 billion in 2009, much lower than the £60 billion increase in balances in 2008.

"These figures include interest added to accounts. If this amount of interest were not included, such a low forecast for 2009 suggests that savers will actually withdraw more money than they deposit this year across the entire savings market. With the retail market currently the most important source of funds for all lenders, and with wholesale funding continuing to be disrupted, it is perhaps not surprising that lending activity is constrained."

* Building society gross lending was £2,067 million in July 2009 compared to £3,566 million in July 2008.

* Net lending by building societies in July 2009 was -£577 million compared to -£112 million in July 2008.

* Mortgage approvals in July 2009 were £1,490 million compared to
£2,636 million in July 2008.

* Savings balances held by building societies decreased by £912 million in July 2009, compared to an increase of £1,935 million in July 2008.

* Excluding any interest added to building society savings accounts,
£1,361 million was withdrawn in July 2009, compared to a net receipt of £1,435 million in July 2008.

* Building societies had a net receipt of £450 million into Cash ISAs in July 2009, compared to net withdrawal of £228 million in July 2008.

~ Ends ~

Notes to editors

1. The Building Societies Association (BSA) represents all 52 building societies in the United Kingdom. Building societies have total assets of over £375 billion and, together with their subsidiaries, hold residential mortgages of over £245 billion, more than 20% of the total outstanding in the UK. Societies hold over £240 billion of retail deposits, accounting for more than 20% of all such deposits in the UK.
Building societies also account for about 36% of all cash ISA balances.
Building societies employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.

2. Photographs of Adrian Coles are available from the BSA press office, or from the Association's website at www.bsa.org.uk or Headlinemoney www.headlinemoney.co.uk

More Articles by Building Societies Association (BSA) ...

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