Mortgage lending breaks July record

Mortgage lending broke the July record last month, figures showed today, but the recent interest rate rise is expected to slow the market.

The Council of Mortgage Lenders (CML) said £30.4bn had been advanced to homebuyers and those remortgaging, 6% below June's figure of £32.4bn but 19% higher than last July's figure and enough to make it the second busiest month on record.

Meanwhile, figures from the British Bankers' Association (BBA) showed its members had seen an increase in lending in July, with a £5.7bn rise in net advances when repayments are taken into account.

This was up on June's rise of £5.6bn and exceeded the £5.3bn average of the previous six months. The BBA said unsecured lending was up by £0.3bn over the month, with borrowers still favouring loans and overdrafts over credit card borrowing. While the amount borrowed on plastic fell by £0.3bn, other forms of borrowing grew by £0.6bn.

Building societies also reported a strong month for mortgage lending, with gross advances equaling £4.8bn, compared to just under £4bn in July last year.

The Building Societies Association (BSA) said net advances were also up on last year's figure at £1.6bn, and approvals for mortgages not yet advanced totalled £5.4bn compared with £4.4bn in July 2005.

While lending boomed, the amount saved by individuals was down markedly on previous months.

The amount paid into building society savings accounts dropped by more than half, the BSA said, from £970m in July last year to £444m last month, while the BBA said bank customers paid in £2.1bn during the month, down from an average of £3.1bn over the previous six months.

The figures cover a period before the base rate rise and lenders said it was likely that the coming months could see lending fall as the cost of borrowing rises.

The CML's director general Michael Coogan said Bank of England approvals data showed there was a strong appetite among borrowers for remortgages and other types of loan.

But he warned: "The timing of the monetary policy committee's interest rate rise a fortnight ago caught some people by surprise and its effect is not reflected in today's figures.

"With financial markets suggesting the possibility of at least one more rate rise before the end of the year, we expect to see more subdued lending over the coming months."

Adrian Coles, director general of the BSA, said the base rate rise was "bound to bite" over the next couple of months and that potential borrowers needed to ensure they could afford a mortgage if rates rose again.

He added: "However, even with the rate rise we believe that most people will continue to be able to manage their debt commitments.

"Around half of all building society outstanding loans are at fixed rates, the highest proportion for a number of years. These borrowers will be protected from the rate rise."