CML: Lending continues to rise despite drop in affordability

10 October 2007
Lending in 2007 has been consistently higher than in 2006, despite the fact that affordability has been taking some harsh blows, according to a report by the Council of Mortgage Lenders.

August’s total gross lending figure was £34 billion, which remains little changed from July’s £34.1 billion, but shows a considerable rise of £1 billion since the same time last year; it is the way the money is being borrowed that shows significant changes.

House purchase and remortgage figures have declined by 11 per cent and 12 per cent respectively compared with August 2006, but the strong buy-to-let market has kept lending buoyant. Other forms of lending are up by 37 per cent than at the same time a year ago.

The buy-to-let sector has done much to keep the figures rising, which has been spurred on by an increase in tenant demand, higher rent, and landlords’ willingness to look to the future and make long-term investments.

Compared with July, August’s house purchase loans saw a five per cent increase to 99,000 – a total value of £15.7 billion – while the number of remortgages decreased at the same rate to 88,000 – a total of £10.5 billion.

Affordability for homeowners has continued to deteriorate, as first-time-buyers were typically borrowing 3.38 times their income in August, the same as in July, but the proportion of their income spent on interest rose from 19.7 per cent in July to 20 per cent the following month.

As a result of buying a house becoming more expensive, the debt burden has become the heaviest it’s been for first-time-buyers in 16 years, and the worst in 15 years for movers, which is only set to worsen over the coming months.

Fixed rate mortgages have shows a rise in popularity during the interest rates’ turbulent times, accounting for 78 per cent of mortgages in August, up 59 per cent since the previous year, but this could start leaning towards more tracker deals if rates begin to fall as expected.

Michael Coogan, CML Director General, commented: “Affordability clearly remains challenging but there may be some relief for borrowers with expectations of an interest rate cut, perhaps as early as November. We are set to have a very segmented market for some months to come. The sub-prime sector is still facing funding constraints, while mainstream fixed-rate deals have begun to get cheaper.

“As lenders move to price for the risk they are taking on, mortgages are set to become more expensive for customers who have poorer credit histories. Now is the time for consumers to look to improve their credit status to keep their borrowing costs as low as possible.”

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