Rate rises 'slow mortgage lending

Interest rate increases in the past year have succeeded in putting the brakes on the property market, figures published today suggest.

Three major reports showed a significant drop in mortgage lending for home purchase and remortgages.

According to the Council of Mortgage Lenders (CML), just 90,000 people took out new mortgages to buy property, the lowest levels seen since February.

However, at 32%, the proportion of first-time buyers entering the property market had increased to the highest level since April 2003.

Michael Coogan, the director general of the CML, said: "These figures are in line with other indicators suggesting that interest rates have had their desired effect and the housing market is slowing down."

Mr Coogan added that the body expects the slowdown to continue.

Meanwhile, a set of figures released today by the British Bankers Association (BBA) also showed a continued slowdown in both mortgage borrowing and consumer credit.

According to the BBA, mortgage lending rose by ?4.4bn in October, around the same increase it reported in September and August. The increase in lending through unsecured personal loans was well below the recent average at ?0.6bn, while the increase in credit card borrowing (?0.4bn) was in line with the rises seen in recent months.

And the Building Societies Association (BSA), which published its lending and savings figures today, said that building societies had seen lending for mortgages drop by some 58% from ?5.2bn in October 2003 to ?3.5bn last month.

On the other hand, the body said that deposits into savings accounts were up by 58% to more than ?1bn in October, compared with last year's ?675m.

Adrian Coles, director general of the BSA, said: "Evidence from building societies this month shows that people are taking a more cautious approach to the housing market.

"Caution is also the order of the day in the savings market, as people are choosing cash accounts over investing in the stock market."

He added that the BSA expect to see a gradual fall in mortgage lending over winter as the property market continues to slow down. Mr Coogan agreed, saying: "We expect the slowdown to continue through the winter months."

David Dooks, the director of statistics at the BBA, said: "Mortgage lending continues to reflect reduced demand compared to the earlier part of this year and consumer credit was also weaker in October, suggesting that interest rate policy, a slower housing market and tighter household budgets are impacting on consumers' appetite for borrowing."

The Monetary Policy Committee voted unanimously to keep interest rates on hold this month at 4.75%, and the general consensus in the City is that interest rates have peaked.

The CML's Mr Coogan said: "Interest rates are now probably at or near their peak so, despite the slowing market, the overwhelming majority of existing borrowers will be able to continue to afford their mortgage payments."