Mortgage lending reaches record heights

Loans to people buying property pushed mortgage lending to record levels in July, according to figures published today.

The Council of Mortgage Lenders (CML) said that people in the UK borrowed a total of ?29.2bn in July, 13% more than in July 2003.

A total of ?14.7bn was lent to people buying properties in July, up from ?11bn in the same month last year. There were a 131,000 loans made for house purchase, the highest number since August 2002, when 135,000 house purchase loans were made.

The total lent for remortgages reached ?11.3bn in July, making up 39% of loans, compared with 44% last year. The CML said the decline of remortgages as a proportion of lending provided further evidence of the current strength of lending for those buying properties.

However, CML's director general Michael Coogan said July's figures did not reflect any effects of interest rate rises, but instead showed "a strong seasonal revival in the house purchase market this spring". The CML's figures show loans that have been completed, and which may have been arranged some weeks in advance.

The monetary policy committee has increased interest rates five times since last November, and some house price indices have suggested that the rise in the cost of borrowing has begun to take effect over the summer months.

The largest UK chain of estate agents said the number of houses it sold dropped by around 25% in July compared with the same month last year, while the Royal Institution of Chartered Surveyors and the National Association of Estate Agents both said this week that house price increases were grinding to a halt, and even beginning to fall, in some areas.

Mr Coogan said: "Estate agents are continuing to report a slowdown in current activity in their offices but this will not be reflected in lending figures for a few months."

More people chose to protect themselves from the possibility of further base rate rises in July; 38% of loans were fixed, compared to 34% in June. Mr Coogan said: "The continuing growth in the popularity of fixed rate lending reinforces a trend we have seen since spring, indicating that some borrowers are responding to higher borrowing costs."

The Building Societies Association (BSA) also released its borrowing and saving figures today. It, too said the number of mortgages had increased. Building societies made gross advances of ?5.1bn in July, compared with ?4.2bn in the same month last year.

Mortgage approvals, loans agreed but not completed, were also up in July, suggesting buyers have not yet been completely put off by reports of a market slowdown.

The BSA also reported a huge jump in savings deposits, from ?155m in July 2003 to ?1,097bn in July this year, the highest amount in over three years.

Adrian Coles, director general of the Building Societies Association, said: "The jump in the amount of money going into savings is another consequence of the rise in interest rates.

"Cash savings accounts are now looking more attractive as people start to reassess their investment needs."