Fears of crash blight housing market

Talk of a correction clouds the outlook for homeowners

UK mortgage lending in April was at the highest level since records began, fuelled by this year's interest rate cuts, the Council of Mortgage Lenders said on Monday.

But the figures come as concern grows that the market may soon be due for a big correction.

It is feared that many first-time buyers are over borrowing to buy their new homes and could be heavily exposed to a downturn in the property market.

Gross lending rose to £12.6bn in April from £12.2bn the month before and £9.2bn a year earlier, the highest levels since monthly records began in June 1998.

"Reductions in interest rates have come at exactly the right time to stimulate the normal spring upturn in the housing market," said CML's head of research Bob Panell.

"Our initial estimates suggest that lending for house purchases in April was more than a fifth higher than a year ago."

Credit crunch

The lending figures could support claims that many people are buying homes they can't afford.

A study among 10,000 borrowers by the Consumer Credit Counselling Service found the biggest concentration of those seeking help in debt problems was among homeowners aged 25 to 39.

Their problems would be compounded by a sharp fall in house prices, which the independent think-tank Cambridge Econometrics has predicted will happen soon.

The average house prices are now five times average household income which is the same level as just before the collapse of property prices in 1989, it said.

The Financial Services Authority recently added to concerns after it complained of lax and over-generous mortgage lending by banks and building societies.

Rate cuts

The Bank of England has cut interest rates three times this year, from 6% at the start of the year to 5.25% in May, bringing the cost of borrowing down for homeowners.

The resulting cuts in mortgage rates have also increased lending, especially for first-time buyers, the CML said.

"May's cut in base rates should help the housing market remain buoyant over the coming few months, although further ahead, modest growth income is expected to curb the potential for renewed rapid house price growth," Mr Pannell said.

"This represents a significant turn-round from the subdued conditions experienced since the middle of last year," he added.