Remortgaging pushes lending figures to new high

A boom in remortgaging boosted August's mortgage lending figures to the highest level since July 2004, and one of the highest on record, lenders said today.

The Council of Mortgage Lenders (CML) said total mortgage lending for the month had reached £27.5bn, an increase of 9% over the month and 4% more than in August 2004.

Lending was up across the board, but it was the remortgage figure which showed the most marked increase. The total borrowed by remortgagors was up 15% on July's figure at £11.7bn, putting it at its highest level since October 2003.

The CML said this boom was probably driven by borrowers taking advantage of low interest rates to switch to a new deal, a large number of whom will have been coming to the end of the lower-priced deals that were on the market two years ago.

Lending for house purchases rose by 6% in August to £12.5bn, but was down slightly on last August's figure of £12.8bn. An estimated 110,000 mortgages were granted to homebuyers during the month, 30% of which went to first-time buyers.

The CML also revealed that fixed-rate mortgages continued to rise in popularity in August, with this type of deals accounting for 54% of loans taken out. These deals now have an average interest rate of 5.23% - down from 5.31% in July and lower than the average variable rate deal, which now stands at 5.61%.

"The doom-mongers' prophecies look to have been wrong, as lending has continued to strengthen over the summer," said Michael Coogan, the CML's director general. "Although the market remains far from spectacular in terms of transaction numbers and house prices, the prospects of a significant market correction are receding.

Mr Coogan said that this would be welcome news for the Bank of England's monetary policy committee, as it considers what to do on interest rates, and added that the CML expects a moderate market for the foreseeable future."

The Building Societies Association (BSA) said that the number of new mortgages approved in August was also up, with lenders making mortgage offers worth a total of £4.4bn over the month, compared with £3.6bn in August 2004.

However the value of mortgages paid out by its members had fallen year-on-year, from £4,7bn last August to £4.3bn this year.

And the British Bankers' Association (BBA) said mortgage lending among its members was up, but lending on credit cards had declined during August.

It said net mortgage lending had risen by £4.3bn over the month, compared with a rise of £3.7bn in July. Total lending by its members, including personal loans and credit cards, as well as mortgage borrowing, was up by £4.9bn, but outstanding balances on credit cards fell by £146m. This is the second time this sector of the market has seen a fall in the last five months.

Howard Archer, chief UK economist at consultancy Global Insight, said: "The fall in credit card borrowing is consistent with our belief that consumer spending is set to remain subdued for some time to come, and that the Bank of England is too optimistic on growth prospects.

"Consequently, we continue to believe that another 25 basis point cut in interest rates is still a distinct possibility before the end of this year, despite the spike up in consumer price inflation."