Mortgage lending 'remains sluggish

Borrowing on mortgages is still subdued, while people are saving the highest amount since 1997, according to figures released today.

Mortgage lending grew by ?5.7bn in December, according to the British Bankers Association's (BBA) monthly report, published today.

But part of that increase - some ?0.5bn - was down to transactions being passed between banks and their mortgage lending subsidiaries.

The underlying increase was ?5.2bn, stronger than the market has seen over the past few months.

However, a proportion of that increase is likely to be down to lenders and brokers playing catch-up following regulatory changes. From October 31 last year, the Financial Services Authority took over regulation of the mortgage industry.

David Dooks, director of statistics at the BBA, said: "When the new mortgage regulations came in, a lot of banks had to delay the launch of some products to make sure they were fully compliant and there were a number of brokers who had not yet become fully authorised."

Any applications for mortgages made through them were delayed until they had received authorisation.

"We think some of the pick-up in lending could be down to the industry catching up after delays in November caused by the changes, but we are unable to say how much," Mr Dooks said.

Meanwhile, the Council of Mortgage Lenders released its monthly figures today. The CML said that lending had slowed from ?21.7bn in November to ?21.3bn in December, some 13% lower than the same month in 2003.

Over 2004, the total amount lent to people to buy property came to ?130.8bn, 5% more than the previous year. However, this only made up 45% of the total amount lent, the same as in 2003 and the lowest figure since records began.

Lending to people buying houses rose slightly from ?9.1bn in November to ?9.8bn in December. However, this is still a far lower figure than the ?12.6bn recorded in December 2003, suggesting the UK's appetite for buying property has not picked up.

High property prices in the last two years have kept first-time buyers out of the picture. According to the CML, 1.2m loans for house purchase were made in 2004, and only 31% of those were for first-time buyers, up slightly from 2003.

The average first-time buyer borrowed 86% of the value of their property. People moving home typically borrowed 64% of the value of their new home, less than the 71% they would have borrowed in 2003.

Michael Coogan, the director general of CML, said he expected the slowdown in lending to continue into the spring, but that he anticipated a stable market over the year as a whole with a "healthy level of activity but without the dramatic increases in house prices and lending volumes experienced in 2004".

"Against this backdrop, homeowners are likely to lose some of their appetite for borrowing against their housing equity, and first-time buyers may well see affordability constraints ease a little as their earnings have a chance to grow more quickly than house prices."

Higher interest rates are partly to blame for the slowdown in lending, with mortgage rates now at the same levels as in 2001. The Building Societies Association (BSA) also reported a fall in mortgage lending from almost ?4bn in December 2003 to ?3.1bn in December 2004.

But while higher rates meant lending slowed, they also encouraged saving to grow. The Building Societies Association said that building societies had received net deposits of ?998m in December 2004, compared with ?867m in the same month in 2003. Societies received a total of ?8m in deposits for cash individual savings accounts (Isa) in December last year.

Adrian Coles, director general of the BSA, said: "Once again the figures confirm the sharp deceleration in the market since the beginning of the year. The festive period is never a busy one for lending, but even taking this into account the slowdown over the last few months is clear. Higher interest rates, a puncturing of the air of confidence surrounding the market and the introduction of mortgage regulation are all causal factors."

He added: "The strong inflow of funds has continued, with net receipts 80% up in 2004, compared to 2003. Indeed, they were higher than in any year since 1997. Attractive rates from building societies and a perceived poor outlook for equities probably explain the success."