New government 'must reduce debt to support mortgage lending'

10 May 2010

Written by Steve Olejnik.

Reducing the country's budget deficit is essential for the recovery of the property market, the Association of Mortgage Intermediaries (AMI) has said.

The AMI has predicted that gross mortgage lending will reach around £150 billion in 2010, which is an improvement on the £143 billion total value of loans approved in 2009. However, it is still far below the level it was at when it peaked at £363 billion in 2007.

In its Quarterly Economic Bulletin, the AMI has mapped out its concerns about the economy, housing and mortgage markets.

Inflation, it says, may seem like a good medium-term option to politicians if they are unable to reduce the deficit through increasing taxes and cutting spending but this could cause the value of people's savings to be eroded.

The bulletin suggests that the funds needed to maintain the current level of borrowing could increase the cost of lending between banks.

"This continues to make new mortgages look less attractive than the current default rates many consumers are enjoying after their fixed-term deals end," Robert Sinclair, the director of AMI, commented.

This comes after the Home Builders Federation said last week that without further mortgage availability, the recent upswing in the house building sector is unsustainable.

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