Mortgage lending down 44% year-on-year

08 July 2008 / by Rebecca Sargent

The mortgage market received yet another blow today as the Council of Mortgage Lenders released new data showing that mortgage lending was down 44 per cent in May this year from May 2007.

The figures suggest that a recovery of the mortgage market could be further off than previously expected. The statistics coincide with today’s report from the British Chamber of Commerce, hinting at the inevitability of a recession in the UK.

However, mortgage agreements did increase slightly in May from April by an insignificant four per cent. One area of the mortgage market that has particularly suffered is remortgage approvals; the CML figures showed that there were just 71,000 loans for remortgage in May this year, down 14 per cent from April.

As mortgage rates hit 10 year highs and high mortgage fees become commonplace, first-time buyers have been hit hard by the tightening of credit. This was reflected in the CML figures that showed first-time buyer mortgage’s to be down 41 per cent from May 2007 to May 2008.

The study also showed that gross lending is down for the seventh consecutive month, year-on-year, highlighting a lack of lenders willing to part with their cash.

The fixed-rate mortgage remains the most popular, accounting for 66 per cent of all mortgages in May, as borrowers appear to seek security in unstable conditions. Commenting on the statistics, CML director general, Michael Coogan, said: “The growing popularity of fixed-rate mortgages, despite the relatively high rates, suggests that many borrowers are prioritising certainty in their monthly payments.

“Lending levels continue to be lower than last year and any recovery is still some way away, with little sign of the special liquidity scheme increasing the flow of funds to the industry or lowering the cost of funds as hoped,” he added.

Meanwhile, new research from Abbey has shown that the housing market is looking more optimistic, as 61 per cent of estate agents questioned expect house price falls to stop within twelve months. The research also shows that homeowners share this hopeful view.

Phil Cliff, director of Abbey Mortgages, said: “Estate agents and homeowners believe that, despite current movements in house prices, we are unlikely to experience a really prolonged period of house price falls. Most think the period of decline will be over within a year and a very small minority think it will last longer than 2-3 years.”

However, Mr Cliff concluded: “While this is ‘light at the end of the tunnel,’ it implies that estate agents and homeowners are bracing themselves for further falls in the very near future.”

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Written by Editorial Team