Page last updated at 09:43 GMT, Tuesday, 20 October 2009 10:43 UK

Summer lift in mortgage lending

For sale signs in London
The rise in mortgage lending is unlikely to continue, the CML says

Mortgage lending has shown a late summer lift compared with earlier in the year, according to the Council of Mortgage Lenders (CML).

The group said that gross mortgage lending in the third quarter of the year reached £38.9bn, an 18% rise on the previous three months.

Mortgage lending was up 2% in September compared with August, but still down 27% on September 2008.

The CML suggested that the recent lift in lending could have hit a plateau.

Lending 'constraints'

Lending and house prices have risen in recent months, although they had been at very low levels as a result of the credit crunch.

Demand for mortgages has been driven by people looking to buy a home. However, the rise in lending has not been as high as it could have been, with remortgaging less common because homeowners are getting a good deal on the current standard variable rates.

Sue Anderson, CML: "House purchase lending is most emphatically up"

However, the CML said that the current trend might not continue.

"House buying activity is running at considerably higher levels than around the turn of the year," said CML economist Paul Samter.

"However, it remains weak on any historic comparison and is unlikely to rise much further given the constraints the lending community faces and a still difficult economic backdrop."

'Gradual recovery'

Various figures have shown that the property market has been recovering slowly from the dramatic slump it suffered in the aftermath banking crisis and the credit crunch.

This latest data shows that gross mortgage lending totalled an estimated £12.5bn in September, up from £12.3 billion in August. There had been a slight dip in August from July.

[The latest figures] do highlight the continued stabilisation in the housing market and some undoubted positive signs
Andrew Montlake, Coreco mortgage brokers

Mr Samter added that wholesale markets had started to "thaw", having been totally frozen by the credit crunch when lenders were unwilling and unable to lend to each other.

This could give some of the biggest mortgage providers access to more funds to lend to potential homeowners. Unemployment data was also not as bad as many economists expected, which could also help a "gradual recovery".

"While the number out of work is rising, it is possible that the peak may be rather lower and earlier than previously expected," he said.

"A lower likelihood of being made unemployed should boost household sentiment."

Other economic data suggested that interest rates would remain low for some time, he said, although first-time buyers remain unlikely to be able to take advantage of the relatively cheap mortgages on offer if they are unable to raise a large deposit.

Public finances

Sue Anderson, of the CML, said that it was expensive for mortgage providers to lend to those who want to borrow at a high loan-to-value.

"That market will come back a bit. I do not think it will come back to the degree that it existed before the credit crunch," she told BBC News.

"In the meantime, borrowers have got used, to some degree, to having to build up a deposit."

The recovery might also be stilted by the political consensus that the public sector finances will need to be addressed after the next general election, the CML said.

Andrew Montlake, director of mortgage broker Coreco, said: "While these latest figures hardly set the world alight, they do highlight the continued stabilisation in the housing market and some undoubted positive signs."

On Monday, the Financial Services Authority - which regulates mortgage providers - published proposals that would require lenders to put borrowers under greater scrutiny before giving them a home loan.

Annual house price change graph



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