Mortgage lending picks up slightly

The amount of money borrowed by people to buy property increased in June, suggesting continuing stability in the housing market, mortgage lenders said today.

The Council of Mortgage Lenders (CML) said total lending in June increased by 16%, from May's figure of £22.3bn to £25.8bn. This was the fifth month running it had recorded an increase. However, in June 2004 lending was higher, reaching £28.2bn.

The CML said lending for house purchases increased by 20% in June, reaching a total of £11.9bn. This was up from £9.9bn in May, but below last June's figure of £13.9bn.

House purchases represented 46% of all lending by the CML's members, compared with 45% in May. However, within this, lending to first-time buyers declined to 27% from 31% in May.

The CML said that the value of remortgage business increased in June, totalling £10.4bn for the month, compared with £9.3bn in May. As a proportion of total lending, however, it said remortgaging had fallen for the sixth month running and now made up 40% of the market.

Despite price cuts among some of the big lenders, the CML said the average price of a fixed-rate mortgage had remained constant in June at 5.37%.

Take-up of these deals was at its highest level since July 2003, with fixed-rates accounting for 47% of all loans. The cost of variable rate deals fell slightly, from an average of 5.8% in May to an average of 5.76% in June.

The CML's figures for the second quarter of this year showed an increase of 24% on the first three months of the year, but lending remained 10% lower than at the same time last year.

CML director general, Michael Coogan, said the figures showed that the market was stable.

"Lending for house purchase is on the increase which indicates improved buyer confidence matched by sellers' realistic price expectations," he said.

"Most commentators agree that interest rates have reached their peak, and many expect rates to fall in the coming months. We agree"

Mr Coogan said that a cut in rates will boost affordability and the attractiveness of home-ownership over the coming months.

Figures released today by the Building Societies Association (BSA) also suggested a pick-up in the mortgage market in June. Total lending among the societies reached £3.9bn, up from £3.5bn in June. However, lending remained below last June's figure of £4.6bn.

The BSA said approvals - loans that have been agreed but not yet completed - were also worth less than in June 2004. This year's figure stood at £4.3bn, compared with £4.8bn last year, and £3.4bn in May 2005.

"Whilst lending has not hit the highs of Q2 2004, it was not expected to," said Brian Morris, the BSA's head of savings. "Instead it remains steady."

"Approvals have increased this month and this is probably explained by the very attractive deals being offered by many building societies, especially on fixed rates, reflecting the markets' anticipation of a base rate cut in the near future."

And Howard Archer, chief UK economist at consultancy Global Insight, agreed that the market was steadying.

"The mortgage lending data for June broadly point to continuing stability in housing market activity.

"Buyer affordability will benefit from the fact that annual house price inflation has now fallen below annual earnings growth and is likely to remain so for some time to come.

"Affordability will further benefit from the reduction in interest rates that seems imminent."