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Four per cent drop in mortgage lending

Date: Wed, 20 Oct 04 Analysis

There was a drop in mortgage lending in September for the second consecutive month, according to the latest data from the Council of Mortgage Lenders (CML).

The survey, which covers both banks and building societies, recorded a four per cent drop in gross lending between August and September.

And at £25.4 billion, gross lending in September showed the first year-on-year drop since October 2000, at nearly two per cent lower than the £25.9 billion advanced in September 2003.

As in August, September's fall in lending reflected a sharp reduction in loans for house purchase. House purchase loans totalled £11.2 billion, compared with £12.8 billion in August.

Lending for house purchase was 23 per cent lower in September than the record £14.6 billion recorded two months earlier in July.

Just 44 per cent of total lending was for house purchase in September, down from 48 per cent the previous month and from last September's figure of 47 per cent.

Remortgaging held up, increasing to a monthly record of £11.5 billion in September compared with £11.0 billion the previous month and £11.3 billion last September.

This is likely to reflect a strong appetite on the part of consumers to seek out good-value deals, especially as their earlier special deals mature, and the CML expects this to continue.

Fixed and capped-rate mortgages maintained their relative popularity, accounting for a combined 43 per cent of new lending in September.

Commenting on the figures, CML director general Michael Coogan said: "All the latest lending data reinforces evidence that the expected slowdown in the housing market is materialising.

"Remortgaging is holding up, but house purchase lending is slowing markedly. Data from other surveys corroborates the picture of an exceptional recent market that is now gently losing steam.

"At the same time, the Bank of England has been emphasising that interest rates may not yet have peaked.

"But unless there is a marked change in the direction of lending and house price data, which seems unlikely on the basis of recent evidence, it looks as if inflationary pressure arising from the housing market itself has now dramatically reduced."

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