Mortgage lending hits record high

Mortgage lending reached record levels in June as the traditional homebuying season got into full swing and high house prices forced up the amount needed to secure a property, figures showed today.

The Council of Mortgage Lenders (CML) said its members had advanced a total of £32.2bn to buyers and remortgagors, considerably up on last June's figure of £25.7bn and breaking the previous record of £29.1bn set in May this year.

Lending usually strengthens in June, reflecting the pick-up in homebuying in the spring months, and the CML said the 11% month-on-month rise in lending was broadly in line with previous June increases.

But high house prices have taken lending to record levels in nine of the last 12 months.

The CML's director general, Michael Coogan, said a busy spring for homebuying and remortgaging had been key factors in June, but the mini-boom seen in the capital had also played a part.

Mr Coogan said: "The strength of the London market is also a factor, with property prices and mortgages substantially higher than in other parts of the UK.

"The level of mortgage approvals shows that demand for houses and remortgages remains strong, so we expect to see continued robust lending during the summer months."

However, he said any increase in interest rates would be likely to dampen the market.

"With inflation above the Bank of England's target, the risk of an interest rate rise seems more real than earlier in the year. This may moderate lending and demand towards the end of the year."

Figures from the British Bankers' Association (BBA) showed a slowdown in the amount lent in June through both mortgages and unsecured debt, including loans and credit cards.

Total lending was up £13.8bn during the month to reach £1.2 trillion. This was higher than the £12.6bn rise in May but below the £15.2bn average of the previous six months.

Once repayments were taken into account, mortgage lending was up £5.6bn, while unsecured personal lending fell by £0.1bn.

The BBA said the amount borrowed through loans and overdrafts was up £0.2bn, but credit card borrowing had fallen by the same amount and had now declined in four of the last six months.

David Dooks, the BBA's director of statistics, said net unsecured lending in 2006 had so far risen by less than half the increase seen in the same period of last year.

Borrowing on credit cards remained particularly subdued, he said, with this year seeing net repayments of £0.7bn compared with net lending of £1.1bn in the first half of 2005.

Howard Archer, chief UK economist at consultancy Global Insight, said the boom in mortgage lending suggested house prices were likely to head up again in the near future. Mr Archer said: "Very strong mortgage lending and approvals in June indicate that housing market activity is currently robust.

"This suggests that house prices may well spike higher in the near term at least, after showing some recent signs of losing momentum."

He said the fall in unsecured borrowing indicated that consumers were keen to find cheaper ways to finance their spending.

"Record high debt levels, rising unemployment and increasing pension concerns means that there is an increased need for many consumers to try and improve their finances," said Mr Archer.

"This need will be heightened if the Bank of England raises interest rates."

Research published today by debt advice company One Advice showed that the average Briton has debts of more than £42,000.

Mortgage borrowing made up the majority of the debt for most people, averaging £39,192, with the rest borrowed on personal loans, overdrafts and credit cards.