New year sees drop in mortgage lending

Mortgage lending eased during January as the housing market experienced its traditional post-Christmas slump, figures showed today.

The Council of Mortgage Lenders said total lending was 10% lower than it had been during December, at ?21.5bn. However, it added that remortgaging remained relatively strong, as the fall was driven entirely by a drop in lending for people buying a new home.

During the month, ?10bn was advanced for house purchases, down from ?12.2bn in December, as the market experienced its usual lull following the rush to complete moves before Christmas.

However, lending for remortgaging rose slightly to ?9.4bn, up from ?9.2bn the previous month, although this was below the ?9.7bn advanced in January 2003, and well down on the ?11bn-plus lent in several months last year.

"It is too early to say what January's figures show us for the next few months, as there is always a strong seasonal drop early in the year," said CML director general Michael Coogan. "However, we continue to expect lending growth to moderate in 2004, and the level of remortgaging to come down a little too."

But figures from the British Bankers' Association painted a different picture, with the group saying lending by the major banks rose by ?5.9bn during January, the largest increase since November 2001.

The group said the figure, which strips out redemptions and repayments, was probably driven by people remortgaging for a better deal and withdrawing equity from their home. Figures from the Building Societies Association also showed a slight easing in total lending, which fell to ?3.46bn from ?4bn the previous month.

In terms of other lending, the BBA said borrowing through credit cards, loans and overdrafts was weaker than in previous months. During January debt on plastic rose by just ?67m, under half the ?122m rise seen the previous month, and lending through loans and overdrafts increased by ?633m, compared with ?637m in December and ?785m in November.

David Dooks, BBA director of statistics, said: "It is too soon to see any impact of the latest quarter-point rise in interest rates on mortgage demand, but the major banks continued to see above-trend mortgage lending in January. In contrast, credit card borrowing remained subdued, with spending being largely offset by repayments."

Other figures released by the CML showed that the popularity of fixed-rate mortgages fell during January. They accounted for just 26% of all loans, down from a high of 47% in August. The group said this probably reflected the fact that fixed-rates were more expensive than variable ones, costing an average of 4.68% compared with 4.41% for the average new variable rate.

Mr Coogan said this suggested that consumers continued to be swayed by the upfront costs they faced rather than the certainty that their repayments would not increase, despite the fact that rates are widely expected to rise further this year.