Mortgage lending drops

18 June 2004
Mortgage lending was £1 billion lower in May than in April, according to new data.

Figures released by the Council of Mortgage Lenders (CML) showed that lending amounted to £23.8 billion in May, down from £24.8 billion in April but still nearly nine per cent higher than in May last year.

The drop in gross lending has been driven by a fall in lending for house purchase. This fell by £1.2 billion - exactly the amount by which it rose from March to April.

Lending for house purchase in fell back to 48 per cent of all lending in May compared with 51 per cent in April.

Remortgaging crept back up to 39 per cent from 37 per cent the previous month, but at £9.3 billion rose only modestly against April's £9.2 billion, and was 17 per cent lower than the £11.2 billion in May last year.

The number of house purchase loans fell to 103,000 in May from 118,000 in April. Thirty-one per cent of these loans (nearly 32,000) were to first-time buyers, compared with 28 per cent (33,000) in April.

But first-time buyer numbers were a little more positive than in May last year, when there were fewer than 28,000, accounting for 30 per cent of all loans for house purchase.

On average, first-time buyers in May borrowed 88 per cent of the value of their property, and their mortgages totalled 2.99 times their income. Movers on average borrowed 70 per cent of the value of their property, representing 2.9 times their income.

Fixed rates accounted for 30 per cent of all loans in May, capped rates two per cent, and variable rates 68 per cent - exactly the same proportions as in the previous month.

This was despite a narrowing in the price differential between the average cost of fixed and variable rate loans from 26 basis points in April to 17 basis points in May. The new average variable rate in May was 4.94 per cent, while the average new fixed rate was 5.11 per cent.

Commenting on the figures, CML director general Michael Coogan said: "This survey and other recent data suggest that the housing market may well have begun to slow down.

"Reduced affordability, exacerbated by the cumulative effect of rising interest rates, is acting as a natural brake.

"But the under-supply of property, and the continued aspirations of most people to own their homes, makes it likely that house price increases will slow down rather than stop.

"Recent speculation about the likelihood of a housing market crash has been alarmist and distorting.

"While no-one is suggesting that the housing market is risk-free, our central forecast and the strongest likelihood remains that house price inflation will fall back to more sustainable levels in the medium term."