Many people claim to have sighted them, in some cases offering what at first appears to be compelling evidence, but which ultimately is shown to be misguided or delusional. So long have we been waiting for the green shoots to appear, some have even begun to consider the possibility that they don’t exist.
Green-shoot deniers would point out GDP growth in the UK is anemic, unemployment has reached a 15-year high and that there’s little certainty that Greece’s managed default will be an exception rather than the first domino in the line. In the mortgage market, the numbers seem stark. Lending in the UK is little more than a third of its pre-crisis peak and is currently only 19% above the ten year low seen in April 2010.
But as any Nessie aficionado will tell you, those who look deeper will find something lurking in the water. It’s just as unlikely the Loch Ness Monster is a trapped dinosaur idling around the waters of the Scottish Highlands as it is the green shoots of recovery will arrive to the sound of thunder on the back of an enormous white stallion.
The reason they’re called shoots is because they are small precursors to a much more dramatic end. If we were to find a small, undramatic Loch Ness monster, pessimistic analysts of the mortgage market would probably refuse to acknowledge it in the hope they will find something with bigger teeth and wilder eyes.
Sometimes positive news isn’t groundbreaking and mortgage lending is an important case in point. If we look at the shorter term, forgetting for a moment the 2007 heights from which the market fell, the garden begins to look a little more fertile. According to the CML, in 2011, gross mortgage lending rose by almost 20% year on year. Last year saw eight monthly rises in lending and since May there has only been one month in which lending volumes have fallen.
What’s more, these increases aren’t being funded by borrowers forced by the low Base Rate into frantically paying down debt. Net lending in January 2012 was £1.6bn – the second highest rate since July 2007. This increase appears to have played an important part in January’s 1.1% rise in house prices recently reported by the Land Registry. Many commentators might attribute this rise to the rush to beat the stamp duty holiday, but doing so ignores the strong contemporaneous mortgage lending figures.
The most important thing needed to create a successful economy is confidence. Despite a number of troubling signs in the UK, lenders are demonstrating they have fundamental confidence in borrowers’ ability to service mortgage debt. Restricted mortgage lending is a far greater brake on the property market than Stamp Duty and lender confidence is the only way to ensure growth in that market and the wider economy. Unlike the Loch Ness Monster, the green shoots of recovery are easily spotted by anyone who looks closely at the performance of the mortgage market.
