Mortgage lending decline 'could be sign of slowdown

Figures released today have revealed what could be the beginning of a slowdown in the housing market. Lending on mortgages was ?1bn lower in May than in April, according to the Council of Mortgage Lenders' monthly report.

In total, ?23.8bn was borrowed in May, compared with ?24.8bn in April. But despite the month-on-month decline, the level of lending was still 9% higher than the same month last year.

The fall in gross lending was led by a ?1.2bn drop in lending for house purchase, exactly the same amount by which lending grew from March to April. Lending for people buying houses fell to 48% of total lending in May, compared with 51% in April. The number of loans for people buying property fell to 103,000 in May, compared with 118,000 in April.

Thirty-one per cent of home loans in May were for first-time buyers. On average, those buying their first homes took out mortgages at almost three times their income, and worth 88% of the value of their property.

Despite rising interest rates, only 30% of borrowers chose fixed-rate mortgages in May, while 68% went for variable rates that will rise and fall along with the Bank of England base rate.

"This survey and other recent data suggest that the housing market may well have begun to slow down. Reduced affordability, exacerbated by the cumulative effect of rising interest rates, is acting as a natural brake," said CML director general Michael Coogan, commenting on the figures. "But the under-supply of property, and the continued aspirations of most people to own their homes, makes it likely that house price increases will slow down rather than stop."

Mr Coogan dismissed recent speculation of a housing market crash as "alarmist and distorting".

"While no-one is suggesting that the housing market is risk-free, our central forecast and the strongest likelihood remains that house price inflation will fall back to more sustainable levels in the medium term," he said.

Meanwhile, the British Bankers' Association, which released its lending figures today, said that mortgage lending had risen by ?4.9bn in May - the smallest monthly rise since last November and well below the average increase of ?5.6bn seen over the last six months.

Figures published by the Building Societies Association also showed a slight slowdown in the growth of mortgage lending, with figures falling from ?4bn gross in April to ?3.8bn in May.

"Lending is still well ahead of a year ago," said Adrian Coles, director general of the BSA, "but we are expecting a gentle slowdown over the remainder of the year and possible increases in interest rates. This does not mean people should panic."

Mr Coles echoed the words of Bank of England governor earlier this week. Mervyn King urged people to be "sensible about the amount of money they can afford to borrow, especially as house prices are likely to rise less rapidly in the future."

However, David Page, an economist at Investec, said he did not think the figures showed the mortgage market was slowing, adding that the underlying rise in lending was higher than the BBA figure suggested. "It is unlikely that we will see any slowdown coming through any time soon," he said, adding that there may be some slowing over the next few months due to higher interest rates and recent warnings over house prices.

According to the BBA, unsecured lending was also slightly weaker during May at ?950m, down from ?994m in April. Within this total, credit card lending was in line with the previous month at ?583m, although this was up on the average for the previous six months of ?363m. But lending through overdrafts and loans continued to be subdued at ?367m, down from ?403m in April.