Mortgage lending falls as market continues to cool

9th October 2014

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Further evidence is pointing towards an easing of the UK property market as new figures show mortgage lending declined in August.

According to trade body, the Council of Mortgage Lenders (CML) during the month lending declined compared to July, marking the first month-on-month drop in house purchase lending volume since February this year.

The data follows on from the latest Residential Market Survey from the Royal Institute of Chartered Surveyors which showed that house price momentum in the UK slowed down to June 2013 levels as demand slipped for third consecutive month in September.

The CML’s figures found that first-time buyer lending declined in August compared to July, with 28,900 first-time buyer loans – 4% fewer than in July but still 9% up on the same time last year. By value, there was £4.4bn of lending to first-time buyers, some 4% down on July but 22% higher than August 2013.

In addition lending to home movers also declined, with the number of loans advanced to movers coming in at 36,500, a 3% fall on the previous month but up 7% on August last year. By value, lending to movers totaled £7bn, 3% down on July but still a robust 17% ahead on an annual basis.

Remortgage lending activity saw a decrease month-on-month and also year-on-year in August. The number of remortgages in August was 4% down on July and 11% down on the same month last year while buy-to-let lending fell 13% over the month.

Paul Smee, director general of the CML, commented: “The lending climate had a glass half full, glass half empty feel about it in August. On the one hand it saw a decline in all lending types month-on-month, which would suggest a leveling off of the market, with remortgaging remaining flat. Yet, on the other hand, we saw the highest August house purchase lending levels since 2007, and the recent Bank of England Credit Conditions Survey expects an upward trend in remortgaging in the final months of the year.

“Overall, these figures give no support to any fears of a developing bubble in housing. This has been a year of major change, and the market has shown significant resilience and responsiveness to the changing environment, improving the availability of lending without compromising financial stability, as the Bank of England’s assessment last week highlighted.”

Chief UK and European economist at IHS Global Insight Howard Archer believes house prices are likely to rise at a more retrained restrained rate over the coming months as buyer interest becomes more limited as a result of stretched house prices.

However, he added: “Even so prices do seem likely to keep rising over the coming months – with support coming from a relatively strong economy, high and rising employment, elevated consumer confidence and still relatively low interest rates and some pick up in earnings growth in 2015. In addition, housing supply tightness will still likely be a factor supporting prices to some degree in a number of areas. On balance, we expect house prices to increase around 1.0% quarter-on-quarter in the fourth quarter of 2014 and by some 5% in 2015.”

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