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Mortgage lending falls 6% year-on-year

CML says housing market is ‘subdued but stable’ as lending falls 1% from June to July

Gross mortgage lending fell marginally in July, dropping 1% to £12.6bn from the £12.68bn advanced in June, according to latest figures from the Council of Mortgage Lenders (CML).

It also fell by 6% in July compared to the same month in 2010, when lending reached £13.3bn.

The organisation said the housing market would continue to stagnate. CML chief economist Bob Pannell said: “UK interest rates look like staying lower for longer. Housing market conditions remain subdued, but pretty stable. Seasonal factors continue to provide some support, but underlying house purchase activity may drift lower over the coming months.”

Chris Gardner, director of mortgage broker Obligo, said the figures were cause for “limited cheer”. “With both a month-on-month fall and an annual drop in gross lending, the nation’s mortgage debt mountain is slowly being whittled away.

“We’re seeing some luckier borrowers make the most of low interest rates as an opportunity to pay off their mortgages more quickly. And with so few new mortgages being granted, the industry is not replenishing the loans which are being paid off.

“As many of their customers leave faster than they can be replaced, mortgage lenders are running flat out just to stand still. So while this is bad news for lenders as they chase such low levels of demand, it can only be good news for the economy.

“As consumers slowly shed their debt millstones there’s an outside chance consumer confidence will improve, and a consumer-led recovery is still the best, or even only, chance for the economy to pick itself up off the floor.”

Earlier this week, Moneyfacts said the average mortgage arrangement fee has increased by £151 over the past year, a rise of 17%. In August 2010 the average fee was £879, but today it stands at £1,030.

The highest fee on the market is £3,800, charged by Accord Mortgages (through selected intermediaries), while Precise Mortgages charges the highest percentage arrangement fee at 2%. Only 357 (or 12%) of mortgages have no arrangement fee.

Michelle Slade from Moneyfacts said: “Lenders appear to be offsetting the low mortgage rates on offer by increasing the arrangement fees, as lenders battle it out to offer the lowest headline rate.

“Percentage fees have become increasingly common, with one lender charging as much as 2%. Unfortunately, too many borrowers still focus their initial attention on getting the best rate without taking full consideration of the true cost of the deal.

“In many cases a low rate with a high fee can work out more expensive than opting for a slightly higher rate, but with a lower fee. The key to deciphering the maze of thousands of mortgages and getting the best deal is for borrowers to do their homework and shop around.”

Richard Sexton, director of e.surv chartered surveyors, said: “July’s subdued figures confirm that June was just a fleeting uptick. The banks have pushed out well-publicised high loan-to-value (LTV) products over the summer, but appearances can be deceptive.

“In practice, lenders are being forced to target low LTV borrowers – fewer than 10% of approvals in July were for those needing high LTVs. There is a discernible gulf between interest rates on low LTV deals, which are tantalisingly cheap, and the more restrictive rates on deals at 90% LTV and above.

“As a result, great swathes of lower income buyers are marooned in the rental market while the lowest rung of the property ladder hovers just out of their reach.”

CML members collectively cover 94% of all residential mortgage lending in the UK. There are currently 11.3m mortgages in the UK worth more than £1.2tn. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds