Mortgage lending slowed last month

Mortgage lending dropped to its lowest level for nearly a year in February, figures showed today.

The Council of Mortgage Lenders said that a total of ?20.1bn was lent during the month, 6.5% less than in January and well down on a high of ?27.3bn in October last year.

However, the group was unwilling to say that this reflected a reduction in consumers' appetite for credit. CML said the figure, which was the lowest since April 2003, followed previous seasonal patterns and so was not unexpected.

Most of the drop was accounted for by a reduction in remortgaging, which was ?1bn lower than in January at ?8.3bn - its lowest level for a year.

Lending to people buying a property also fell slightly at ?9.8bn, accounting for 49% of total lending, while remortgaging accounted for 41% and equity release, borrowing money against the value of property, accounted for a further 8%

The CML said there were signs that first-time buyers were coming back to the market, with 30% of all loans being taken out by people taking their first step on the property ladder, up from 27% during the previous three months.

But despite February's interest rate hike and the prospect of further rises to come, homeowners continued to opt for cheaper variable rate mortgages rather than fixed-rate deals. This reflects the findings of David Miles in his report on the mortgage market, published last week. Miles asserted that a greater take-up of longer-term, fixed-rate mortgages would help to smooth out house prices and aid the economy.

However, just 21% of the new loans taken out were fixed-rate ones, down from 47% in August, while 77% were variable deals, with interest rates averaging 4.57%, compared with 4.85% for fixed-rate mortgages. CML director general Michael Coogan said: "Lending remains very strong, but we still expect it to moderate as the year goes on.

"There is no obvious sign of any let-up in affordability problems, but at least yesterday's budget avoided imposing any new or increased taxes on home-buyers."

Paragon mortgages, specialists in buy-to-let lending, said landlords were continuing to invest in the rental market, but are borrowing less money compared to the value of the properties they buy. The average buy-to-let investor increased their portfolio by 5% over the last quarter, to almost 12 properties. The average loan-to-value, the percentage of borrowing compared to the value of the property, was 41% this quarter, compared with 44% in November.

The British Bankers' Association also released its lending figures today, which showed that mortgage lending had moderated during the month. The group said net lending (which strips out redemptions and repayments) by the major banks was ?5.45bn during February, down from a high of ?5.85bn during January.

Growth in unsecured lending was also weaker, with people borrowing ?337m through loans and overdrafts, down from ?480m the previous month. But despite warnings to consumers about growing levels of household debt, credit card borrowing continued to increase, rising by ?349m, compared with an increase of ?320m in January, ?148m in December and just ?54m in November.

David Dooks, BBA director of statistics, said: "February saw the growth in mortgage lending returning to trend after the particularly strong January figure. Overall growth in consumer credit in February was little different from the monthly rises over the previous 12 months or so and, although credit card borrowing was stronger than of late, this was offset to some extent by weaker demand for personal loans."