Unexpected dip in mortgage lending, despite market strength

Britain's housing market showed the first signs of renewed weakness last month with an easing in demand for home loans, according to figures out yesterday.

Amid a spate of surveys indicating prices have started to pick up, City analysts said the unexpected dip in mortgage lending suggested that property was becoming too expensive for many buyers and that activity in the market was starting to suffer as a result.

The British Bankers' Association said net mortgage lending rose by £4.4bn in February, against a £4.6bn increase in January and an average of £4.8bn per month over the past six months.

The housing market has been showing signs of strength since last summer, helped by the quarter-point cut in interest rates from the Bank of England last August. Estate agents have been reporting rising prices, as have the monthly surveys from Halifax and Nationwide.

But with little evidence that the Bank's monetary policy committee is about to provide a further boost by reducing the cost of borrowing again in the near future, City analysts said the rally was likely to run out of steam.

The mortgage lending data pointed to only modest growth in house prices, they added, particularly at a time when disposable incomes were being affected by modest pay increases and sharp rises in household energy bills.

George Johns, economist at Barclays Capital, said it was "consistent with our view that house price inflation is likely to moderate at around 5% in the medium term rather than pick up sharply".

The BBA data also indicated that consumers continue to be wary about piling up debt on their credit cards. The £200m rise in credit card lending was in line with the average of the past six months.

David Dooks, the BBA's director of statistics, said: "Just as we did not regard the above-trend rises in the major banks' net mortgage lending towards the end of 2005 as heralding a sustained upturn in mortgage market activity, we do not now see the moderately weaker figures since as signalling a downturn, particularly with reports of house prices picking up in 2006 so far. Behind these monthly fluctuations, mortgage lending is on a stable trend, though not at the high 2004 levels."