Mortgage borrowing hits record high

Mortgage lending continued to increase in June, in spite of a shaky property market, figures showed today.

According to the Council of Mortgage Lenders (CML), the amount lent for mortgages grew to ?27.8bn in June, 24% more than was lent in the same month last year.

Homebuyers did not appear to be put off by fears of a housing market slowdown; the CML's report showed that lending for house purchase hit an all-time high of ?13.6bn in June, some 40% more than in June 2003. An estimated 123,000 mortgages for house purchase were taken out in June, compared with 99,000 a year ago.

People buying their first home are becoming increasingly financially stretched; the average first time buyer now has to borrow more than three times their income to buy a property.

CML director general, Michael Coogan, said the increase in borrowing sent out mixed signals in the housing market, but that ultimately the soaring prices of the past few years would have to ease.

"June saw a bounce back to record lending levels, with an especially strong resurgence in lending for house purchase," said Mr Coogan. "But however you look at it, in an environment of rising interest rates and rising house prices, there will come a point where affordability constraints mean that lending growth slows down.

"Early evidence from estate agency surveys suggests consumer appetite is already beginning to turn. But it may still be another few months before the lending surveys reflect this," he added.

The Royal Institution of Chartered Surveyors (RICS) said today that prices had fallen in London and the south-east for the first time since the Iraq war, while reports from the north of England, where prices rose significantly in the first half of the year, showed that the boom may be reaching an end.

However, Howard Archer, economist at Global Insight, said the strength of mortgage lending highlighted in the report showed that "it is premature to be certain that the housing market is now slowing markedly on a sustainable basis despite much of the recent evidence pointing this way".

According to the British Bankers Association, unsecured borrowing also rose in June, despite recent increases in interest rates. Consumers borrowed ?656m through loans and overdrafts during the month, compared with ?539m in May.

At the same time credit card lending rose by ?450m, in line with the previous month but slightly above the recent average.

Mr Archer said: "With unsecured personal lending also relatively strong in June, a 25 basis point interest rate hike by the Bank of England seems even more likely.

But while lending continues to grow, increased interest rates seem to be encouraging people to take advantage of more competitive savings rates. The Building Societies Association (BSA) said that it saw an inflow of ?554m in June, compared with ?65m in the same month last year.

Adrian Coles, director general of the BSA said: "The net receipts into savings suggest that people are starting to return to the high street for their investment needs. Given the increase in interest rates over the last ten months, deposit accounts are now looking much more attractive."