40% rise in mortgage lending 'unsustainable', claims report

Total mortgage advances increased by over 40% between July 2001 and July 2002, according to a report released today by market analyst Datamonitor. The report claimed that the increase had been driven by soaring house prices and low interest rates, but added that such a level of growth cannot be sustained over the next four years.

Mortgage advances rose by 40.6% during 12-month period, jumping from ?15.5bn in July 2001 to ?21.8bn in July 2002. Datamonitor said that although the current rate was unsustainable, it did expect lending to continue to rise, with new advances expected to reach ?267bn during 2006.

Alex Boorman, author of the report, said: "Gross advances increased rapidly between 2000 and 2001 and will no doubt have done so between 2001 and 2002. However, such growth cannot be sustained in the long-term. A detrimental change in one or more of a number of market drivers would rein in gross advances and bring the mortgage market as a whole back into a realm of normality."

The report also said that, despite the fact it has been largely unsuccessful so far, the online mortgage market will grow from 4% of the total mortgage market to 10% by 2006.

"Few are ready to write-off the internet as a viable channel completely. The majority do, however, recognise that online services cannot be provided in isolation from other more personal channels," Mr Boorman said.

"Consumers' desire for face-to-face advice is strong and will remain so in the future regardless of online developments."

The report said that remortgaging accounted for around 31% of new loans during 2001, as consumers continued to pay more attention to their personal finances, forcing lenders to work harder to retain their existing customers.

Datamonitor said this had led to an increase in the number of lenders offering current account or offset mortgages, where consumers can offset their borrowings against their savings.

Around 15 lenders now offer these mortgages, accounting for between 15% and 20% of net lending, and this figure is expected to rise.

Woolwich has a defection rate of 2.5% on its Open Plan, compared with 10% on its traditional mortgages, while people with off-set mortgages are more likely to buy other products from their provider than other mortgage customers.