Easter upturn for mortgage market

Mortgage lenders benefited from an upturn over the Easter period, with gross lending reaching ?21bn in April, according to figures released today by the Council of Mortgage Lenders.

The figure is the highest seen by the mortgage market since October last year, and is up ?1.3bn on March's lending total of ?19.7bn. It also represents a substantial 28% year-on-year increase on the April 2002 figure of ?16.4bn.

However, closer examination of the CML's figures reveals a less optimistic picture. The remortgaging market, which grew by ?1bn to ?10.7bn in April, accounted for over half (51%) of all lending during the month. The surge in remortgaging has been driven by homeowners taking advantage of the historically low mortgage rates currently on offer following recent interest rate cuts by the Bank of England: consequently, the remortgaging figure is now 70% higher than it was in April 2002. By contrast, however, loans for house purchase rose only modestly from ?8.2bn in March to ?8.4bn in April - and were down nearly 9% from last April's figure of ?9.2bn.

Elsewhere, April saw a slight improvement in the first-time buyers' market - the number of loans being approved rose to around 33,000 from just under 31,000 in March. Nevertheless, the figure is significantly lower than the 39,000 who entered the market in April 2002.

It appears that first-time buyers are still put off from entering the housing market by the problems of affordability. While mortgage rates remain extremely low (interest rates currently average 4.09% for standard variable mortgages and 4.31% for fixed rates) high house prices meant that April's first-time buyers were nevertheless obliged to borrow an average of 2.66 times their income. But there was reassurance for those predicting a housing market crash and a return to the negative equity problems of the late 1980s: first-time buyers maintained their recent trend of relatively high deposits, borrowing on average just 76% of the value of the property.

CML director general Michael Coogan commented on the figures: "Remortgaging remains the main driver of the mortgage business at present, while lending for house purchase is showing some reduction from last year's enormously high levels. The market is so far performing much as we forecast at the beginning of the year, so we continue to expect a controlled slowdown in house price inflation. There is increasing evidence that the affordability constraints on first-time buyers are kicking in, and with the moderation in the growth of lending for house purchase, we think that house prices are now probably turning the corner to lower levels of growth."

The rise in lending was supported by figures from the British Bankers' Association, which said mortgage lending by the major banks increased by ?5.2bn in April, up from an underlying rise of ?4.81bn in March.