Borrowers opt for fixed mortgages

Half of all mortgages taken out in July were fixed-rate deals, as the average price of these loans fell for the ninth consecutive month, figures showed today, but lending was down on the previous month.

The Council of Mortgage Lenders (CML) said that the average fixed rate fell from 5.36% in June to 5.31%, while the proportion of mortgages taken out on a fixed-rate basis rose from 47% to 50%. This is the highest proportion since December 1998.

The average price of a variable rate deal fell for the seventh consecutive month to 5.68% from 5.76%.

Despite the falling cost of mortgages, the CML said lending had fallen in July, with the total amount borrowed just 2% down on June's figure at £25.2bn. This figure is 13% lower than the £29bn of lending recorded in July 2004.

Lending for house purchases decreased only slightly over the month, from £12bn in June to £11.8bn in July. However, this figure is 19% lower than in July last year when homebuyers borrowed a total of £14.6bn.

The CML's figures show a slight increase in July remortgaging, which was up £200m to £10.3bn.

Remortgaging as a proportion of total lending also rose to 41% from 39% in June. House purchases accounted for 47% of loans, while the remainder was made up of further advances on existing mortgages.

First-time buyers are still in the minority, making up just 29% of those taking mortgages for house purchases.

Commenting on the latest figures, the CML's director general, Michael Coogan, said this month's interest rate cut should ensure the ongoing stability of the mortgage market.

"Today's figures indicate that the housing market has started to stabilise at a new lower level last seen in 2003," he said.

"The recent 0.25% cut in interest rates by the Bank of England should help ensure that this stability continues over the coming months by giving a much needed boost to consumer confidence about future interest rates.

"Our recently published forecasts predict a steady housing market in the next couple of years, and so we expect to see similar levels of lending in the coming months."

The British Banking Association (BBA) also reported a slow July, and suggested that anticipation of August's rate cut may have led borrowers to adopt a wait and see approach.

Total mortgage lending among its members rose by £3.7bn over the month, down from the £4.7bn rise in June, while credit card borrowing was up by just £0.1bn.

"July's growth in lending to individuals slowed from the recent trend. This could have reflected, in the case of mortgages, consumers waiting for the widely anticipated cut in interest rates in August, or in the case of consumer credit, a possible impact of poor weather and the London bombings on consumer sentiment, but neither effect is certain, nor quantifiable," said David Dooks, the BBA's director of statistics.

Figures published today by the Building Societies Association (BSA) showed its members saw a slowdown in borrowing and saving over the year to the end of July.

Gross lending by building societies totalled £3.9bn in July 2005, compared with £5.1bn in July 2004. The value of loans agreed but not yet paid out was also down, from £4.7bn last July to almost £4.8bn this year.

Adrian Coles, director-general of the BSA, said: "As predicted, mortgage lending has continued at a steady pace.

"Although the figures are down from the heights of 2004, the market looks like it has adjusted to a more sensible level. It is too early to tell what impact the recent Bank of England base rate cut will have, but approvals - loans agreed but not yet made - indicate that this pace will continue."

While the net inflow of money into savings accounts - that is the amount invested minus the amount withdrawn - had fallen over the year, to £970m from almost £1.1bn in July 2004, seasonally adjusted figures showed that the amount of money flowing into savings accounts is up on two years ago.

The BSA noted a four-fold increase in the amount deposited in savings, from £255m in July 2003 to £1bn this year.

Mr Coles said: "It seems consumers are still wary about investing in stocks and shares and are opting to put their money into building society cash accounts instead."