Rise in mortgage lending points to housing slump levelling off

Mortgage lending picked up last month, banks reported yesterday, providing further evidence that the housing market may be past the worst of its slowdown.

The lending data came on the heels of housing market surveys suggesting buyer interest is picking up again in response to lower asking prices and last month's interest rate cut from the Bank of England.

The British Bankers' Association said underlying mortgage lending rose by a seasonally adjusted £4.3bn in August - considerably better than July's weak £3.7bn and back in line with the £4.4bn monthly average over the past six months in which house prices have stagnated. David Dooks, the BBA's director of statistics, said: "After fluctuations in June and July, August saw mortgage lending return to the very stable trend that we have seen throughout this year."

Separately, the Council of Mortgage Lenders revealed that gross mortgage lending, excluding redemptions, rose by a non-adjusted 9% last month to £27.5bn. This is the highest since July last year, the point at which the housing market boom of recent years suddenly came to a halt.

The CML said the rise was driven by remortgaging as buyers switched to lower rates or fixed rates. Remortgaging accounted for £11.7bn of the total lending figure, the highest for nearly two years.

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

Independent economists agreed, pointing to the latest survey from the Royal Institution of Chartered Surveyors, also out yesterday, which showed the smallest number of surveyors for 11 months reporting falling prices. Alan Clarke, an economist at BNP Paribas, said: "The positive mortgage numbers reinforce the upbeat RICS survey and come after months of better news on mortgage approvals. It looks like the worst news on the housing market is behind us."

A leading bear on the housing market, Ed Stansfield, of the consultancy Capital Economics, was less convinced, however. "The lending data showed that all types of mortgage lending improved in August but as yet they do little to suggest that housing demand has done anything more than stabilise over the past two to three months," he said. He said the value of lending for new house purchases, as against remortgaging, was still lower than a year ago and the number of loans to buy had shown only a tentative recovery.

"With the Bank of England playing down the chances of further interest rate reductions in the near term, and the figures suggesting little, if any, pick-up in first-time buyer numbers, it remains to be seen how robust any autumn upturn proves to be," he added.

The BBA figures also showed credit card lending falling by £146m last month. Mr Dooks said: "This weakness on cards ties in with the very weak retail sales data and reflects consumer caution in relation to their borrowing."