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Mortgage lending down in the UK

Gross mortgage lending totalled an estimated £12.9 billion in September, a 2% decrease from the £13.1 billion lent in August, according to the latest figures published today (Thursday 20 October) by the Council of Mortgage Lenders.

The CML pointed out that it is still 4% higher than September 2010 when it stood at £12.4 billion and there has been steady year on year growth. But levels of activity are subdued and commentators showed a mixed reaction to the data.

‘The short term economic prospects for the UK are not favourable. The housing market is very sensitive to wider household confidence, and this seems likely to weaken over the coming months in response to the latest spike in consumer prices and headline unemployment figures,’ said CML chief economist Bob Pannell.

David Whittaker, managing director of Mortgages For Business, pointed out that low activity coupled with the high deposits needed from first time buyers means recovery is some way off. ‘The cocktail of record low interest rates and record high inflation has made the prospect of saving for a deposit as realistic as finding a pot of gold at the end of a rainbow. This, and the impact of low overall economic confidence, is reflected in subdued overall lending in the traditionally busy early autumn period when the market is usually dominated by owner occupiers buying and selling after the summer break,’ he explained.

‘Many will take cheer from the fact that the year on year figures show solid growth in lending levels, but this rise has been driven by professional investors and buy to let borrowers. While property prices stagnate and rental demand increases at an ever increasing rate, it is landlords and professional investors who will continue to enjoy a purple patch and prop up the rest of the market,’ he added.

Paul Hunt, managing director of Phoebus Software believes that some comfort should be taken from the quarterly and annual improvement which shows how resilient the market has been to the economic challenges it faces. ‘There are plenty more economic hurdles to jump before we will see a significant and sustained recovery in lending. But the fact that lenders have not retreated into their shells shows they are still seeking to boost lending wherever possible and this has supported the housing market, preventing larger falls than we have seen in the course of the year,’ he  said.

‘Lenders have responded to the prospect of a low base rate in the long term by offering their lowest ever rates. Although this did not cause lending to rise last month, it has prevented larger falls and is a consequence of continuing confidence in borrowers’ finances and the UK housing market,’ he added.

But Richard Sexton, director of e.surv chartered surveyors, said that with inflation so high, the year on year rise is actually little to celebrate. ‘The reality is mortgage lenders are actually retreating from high loan to value lending. Their confidence has been further dented by the economic crises that is running amok in eurozone, and by the cracks beginning to appear in the government’s growth strategy,’ he explained.

‘With the supply of credit so restricted, there is almost no scope for them to grow their loan books, so they are understandably playing it safe and focusing on targeting borrowers with big deposits. Purchase approvals with a deposit of 25% fell to their lowest level in six months in September because lending criteria on high LTV products is so tight. First time buyer numbers have fallen to their lowest since November last year, which is a sure sign the mortgage market is struggling,’ he added.