Page last updated at 10:14 GMT, Tuesday, 8 July 2008 11:14 UK

Supply of mortgages 'remains low'

To Let signs
Many first-time buyers are facing having to rent for longer

A recovery in the mortgage squeeze is still "some way away", according to the Council of Mortgage Lenders (CML).

The comment came as CML figures showed the number of loans for home purchases remained low in May at 52,700.

This was a slight rise of 4% from the previous month, but was still 44% lower than the same month in 2007.

The figures revealed a steep decline in the number of people remortgaging in May - down 14% on the previous month and 23% lower year-on-year.

"Lending levels continue to be lower than last year and any recovery is still some way away," said CML director general Michael Coogan.

Tighter lending

The CML said the situation was likely to "get worse before it gets better", with first-time buyers facing having to find larger deposits and needing a good credit rating to get on the housing ladder.

The growing popularity of fixed-rate mortgages, despite the relatively high rates, suggests that many borrowers are prioritising certainty in their monthly payments
Michael Coogan
CML director general

The number of loans to first-time buyers rose by 4% from April to 19,200 in May, but was 41% lower than May last year. These buyers typically borrowed 3.3 times their income.

Recent mortgage approvals data from the Bank of England indicated that the number of loans for house purchase would fall further in coming months, the CML said.

The CML data relates to completions, as does the latest survey of house prices released by the Department for Communities and Local Government (DCLG).

This showed that annual house price growth slowed for a seventh consecutive month, down from 4.9% in April to 3.7% in May.

Annual house price growth was highest in Scotland, at 6.9%. Prices in England rose by 3.8% and were up 1.5% in Wales, but prices had fallen by 7.8% in Northern Ireland.

The average cost of a home in the UK was 218,151 in May, the DCLG said.

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The popularity of fixed-rate mortgages has risen, despite the rising costs of this type of deal.

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Lenders have blamed the cost of inter-bank lending for the increase in costs for new borrowers and those remortgaging, but there has also been some criticism of them being slow to drop interest rates when their own costs have fallen.

Fixed-rate mortgages accounted for 66% of all new loans, up from 59% in April, the CML said.

"The growing popularity of fixed-rate mortgages, despite the relatively high rates, suggests that many borrowers are prioritising certainty in their monthly payments," said Mr Coogan.

The average interest rate for a fixed-rate mortgage in May was 5.81%, the CML said, compared with 5.55% in May last year.

However, shorter-term deals for those unable to put down a large deposit have cost more during the credit crunch, with lenders offering better deals to "safer" borrowers.

Financial information service Moneyfacts says that the average interest rate on a two-year fixed-rate mortgage on 7 July was 7.07%.

Regional prices

The squeeze on the availability of mortgages has cut the number of people remortgaging and wanting to move house.

England: 225,408
Wales: 164,416
Scotland: 167,126
Northern Ireland: 215,655
Source: DCLG

The CML repeated its views that there was still "little sign" that the Bank of England's efforts in April to free up inter-bank lending through its special liquidity scheme had cut costs.

Demand for homes has fallen as a result of the mortgage squeeze, with some regions seeing more of a slowdown than others in the housing market.

The DCLG said highest annual house price growth was in London (7.8%) followed by the east (4.6%) and south-east of England (3.6%).

Annual house price growth was lower in the North East (3%), North West (2.7%) and Yorkshire and the Humber (1.8%).

The lowest annual house price rates of change were in the south-west of England (1.4%), the East Midlands (1.3%) and the West Midlands (1.2%).

Average house prices were 225,408 in England, 164,416 in Wales, 167,126 in Scotland and 215,655 in Northern Ireland in May.

The average price paid by first-time buyers across the whole of the UK was 162,666 in May, while the average price paid by former owner-occupiers was 251,075.

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