MORTGAGE LENDING PLUNGES 13 PER CENT

18th September 2009

By Geoff Marsh for dailystar.co.uk

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MORTGAGE lending fell by 13 per cent during August as the market suffered its usual seasonal dip, figures showed today.

A total of £12.6 billion was advanced during the month, down from £14.5 billion in July and 37 per cent lower than in August last year, according to the Council of Mortgage Lenders.

The group said a fall in lending was to be expected during August when activity in the market slows down as potential buyers go away on holiday.

But it added that despite the dip, underlying lending levels appeared to have stabilised during the summer.

The group said stronger levels of lending for house purchase continued to be offset by a lower number of people remortgaging.

Low interest rates mean many homeowners are better off sticking on the standard variable rate they reverted to when a deal came to an end, rather than taking out a new one.

It said this trend was likely to continue for the rest of the year, although the pick-up in housing market activity would be checked by funding constraints.

Council of Mortgage Lenders (CML) economist Paul Samter said: “The likelihood of a significant pick-up in lending remains weak, but the prospects for wholesale funding markets are improving.

“This could result in a gradual easing in constraints on the supply of funding over time.

“However, demand from consumers and a prudent approach to lending criteria are likely to mean that the market remains subdued.”

There have been recent signs that the housing market has stabilised, with most major house price indexes now reporting price rises.

But economists are predicting a fresh round of price falls next year, triggered by rising unemployment and continuing problems in the mortgage market.

Andrew Montlake, director of independent mortgage broker Coreco, said: “The August decline in mortgage lending was always on the cards, so this is by no means a setback.

“Looking at the bigger picture, the mortgage market is slowly picking itself back up after being KO’d by the credit crunch.

“There are more products available now. However, there is still a dearth of products at higher LTVs (loan to value ratios) and this will continue to act as a drag on the property market.”

The Bank of England, which also released its monthly report on lending trends today, said net mortgage lending, which strips out redemptions and repayments, picked up slightly during August, after being negative in July for the first time since its monthly data series began in 1993.

It said lending was boosted by higher advances to people buying a property, although demand from homeowners remortgaging continued to fall.

There was also a slight increase in the proportion of lending being done at loan-to-value ratios of between 76 per cent and 90 per cent, but lending to people with less than a 10% deposit has fallen since the beginning of the year.

The average rate charged on a new mortgage remained at around 4 per cent during August, with the rate charged on two-year fixed-rate deals remaining unchanged despite a fall in two-year swap rates.

The Bank warned that the major lenders remained cautious about the prospects for house prices and unemployment, and with specialist lenders remaining absent from the market, they did not expect a significant reduction in the margins they charged on home loans in the near term.

The report also said that net lending to UK businesses fell further during August, after reaching its lowest level in July since the series began in 1998.

Lenders reported that many companies were paying back debt, but keeping the size of their facilities unchanged, suggesting they were trying to create “headroom” to enable them to respond quickly to future investment opportunities, without having to negotiate new loan facilities.