Mortgage Lending Up – For Now

Figures from the Council of Mortgage Lenders show that mortgage lending was up by almost £2bn in October. It seems to be that people were drawing on loans that were agreed prior to the latest banking turmoil. Despite the increase, the CML’s forecast was for a slowdown ahead.

Gross mortgage lending went up from £30.6bn in September to £32.4bn in October, but lenders said that loan advances would drop over the rest of the year as the effects of the late summer financial market turmoil come through.

The increase experienced in October was twice the 3% typical for the season, and it was also 6% higher than the figure for October 2006.

However, the Bank of England has reported a reduction in mortgage approvals, and the lenders agreed, saying that borrowing would fall below the average of a billion pounds a day seen in October.

CML director general Michael Coogan said: “The next few months will be a testing time as ongoing pressures in financial markets feed through into the wider economy. Funding constraints will continue to restrict lending activity and make loans more expensive. The Bank of England’s recent Quarterly Inflation Report reinforced the likelihood of a reduction in rates early next year, and that should provide some relief for borrowers sooner rather than later.”

A rise in mortgage lending for October was also reported by the Building Societies Association whose members reported total advances of £4.65bn – the highest monthly figure since March. Removing redemptions and repayments gives Net Lending, which was £1.12bn, the highest since June. These figures were both lower than last October.

David Stubbs, RICS senior economist said: “Despite the on-going slowdown in the market, buoyant economic conditions are still encouraging people to take out mortgages and buy homes. Indeed, despite the withdrawal of many mortgage products from the market, those with solid earnings and the necessary deposit are still gaining access to mortgage finance. However, lending volumes are set to trend lower in coming months. An economic slowdown is underway and the housing market is losing momentum. This is likely to prompt the Bank of England to cut interest rates in coming months.”