Borrowing boom signals property recovery

The amount of money advanced in mortgages fell in October, but it remained one of the busiest months on record, according to figures released today by lenders.

The Council of Mortgage Lenders (CML) said gross mortgage lending during the month added up to an estimated £27bn, down 3% on September's figure but 16% higher than in October 2004.

The figures cover loans for house purchases and remortgages, as well as further advances to existing customers.

They don't take into account repayments and redemptions, so some of the growth in lending may have been driven by people moving their borrowing from one lender to another to take advantage of good deals in October, rather than new borrowing.

The CML said lending activity was normally expected to slowdown at this time of year and that October's high level of lending reflected the progressive recovery in house sales over the past year.

Its director general, Michael Coogan, said: "We believe that gross mortgage advances for 2005 will reach around £280bn - similar to the levels seen in 2003 and 2004.

"The decision by the Bank of England's monetary policy committee to hold interest rates steady in November was widely expected, and fits with market expectations that they will remain broadly flat in 2006," said Mr Coogan.

"In this environment, we believe the housing market will stabilise around current levels."

The Building Societies Association (BSA) said lending by its members was also down on September but higher than in October last year.

It said gross advances during the month totalled £3.8bn, compared with £4.4bn the previous month and £3.4bn 12 months previously.

Loans approved during the month but not yet paid out totalled £3.8bn, up from just over £3bn in the same period last year.

However, when repayments were taken into account, net advances were down from £1bn to £929m.

"The market seems to be showing a slow but steady recovery, but it is clear that we are nowhere near boom conditions and there is no possibility of such conditions emerging over the next year or two," said Adrian Coles, the BSA's director general.

The British Bankers' Association (BBA) also reported a slowdown in mortgage lending, but said borrowing on consumer credit, loans and overdrafts had increased by £437m over the month, compared with September's figure of £274m.

New borrowing on credit cards increased £243m, up on the £98m average of the previous six months.

The BBA's director of statistics, David Dooks, said: "A small increase in credit card borrowing was consistent with a slight upturn in retail sales, but overall consumers' demand for credit continues to be cautious."

Howard Archer, chief UK economist said consumers looked set to keep their spending and borrowing reigned in.

"Record high debt levels and rising unemployment means that there is an increased need for many consumers to try and repair their balance sheets.

"This seems likely to lead to a further increase in the savings ratio (which fell to its lowest level for more than 40 years in 2004, before picking up in the first half of 2005) with negative repercussions for consumer spending."