{"id":2544,"date":"2008-04-14T13:07:38","date_gmt":"2008-04-14T13:07:38","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2544"},"modified":"2025-03-27T15:48:35","modified_gmt":"2025-03-27T15:48:35","slug":"how-big-is-the-mortgage-funding-gap","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2544","title":{"rendered":"How big is the mortgage funding gap?"},"content":{"rendered":"

UK net mortgage lending last year totalled £108 billion (see here<\/a>). Of this, only £27 billion ended up on the books of banks and building societies. The other £81 billion was assumed by “other specialist lenders” – often bank subsidiaries largely funded in wholesale markets. <\/p>\n

Reflecting the shut-down of wholesale funding, these specialist lenders reduced<\/em> their mortgage book by nearly £5 billion in the first two months of 2008. Assume – optimistically – that their net lending is zero for the year as a whole. If mortgage demand remained at £108 billion, and banks and building societies planned again to lend only £27 billion, this would imply a “funding gap” of £81 billion. <\/p>\n

The actual gap is likely to be significantly lower, for three reasons. <\/p>\n

First, banks funded £10 billion of the £81 billion advanced by specialist lenders in 2007. This £10 billion will be available to finance their own lending in 2008, reducing the estimated funding gap to £71 billion. <\/p>\n

Secondly, mortgage demand would have fallen as a result of Bank rate rises and a slowing economy even in the absence of the recent tightening of lending standards. In the last housing slowdown in 2004\/5, when supply conditions remained generous, the 12-month running total of net mortgage lending declined 22% from peak to trough. A drop in mortgage demand on this scale in 2008 would cut the implied funding gap from £71 billion to £47 billion. <\/p>\n

Thirdly, a portion of the funds that last year were invested in wholesale markets will this year end up in bank and building society deposits, creating extra lending capacity. <\/p>\n

Of course, any contraction of specialist lenders’ mortgage books would offset these factors, boosting the funding gap. <\/p>\n

I think the authorities need to offer about £40 billion of additional funding assistance to mortgage lenders this year. The previous post discussed detailed proposals.<\/p>\n","protected":false},"excerpt":{"rendered":"

UK net mortgage lending last year totalled £108 billion (see here). Of this, only £27 billion ended up on the books of banks and building societies. The other £81 billion was assumed by “other specialist lenders” – often bank subsidiaries largely funded in wholesale markets. Reflecting the shut-down of wholesale funding, these specialist lenders reduced […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2544","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2544","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2544"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2544\/revisions"}],"predecessor-version":[{"id":4853,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2544\/revisions\/4853"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2544"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2544"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2544"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}