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Mortgage Lending Up – Underpinned By Remortgages

Mortgage lending is still on the way up despite the five interest rate rises in the last year. The Council of Mortgage Lenders (CML) announced that lending was up to £34.2bn in June, which was up 9% on the £31.4bn figure in May. The June figure is the highest since last November. It is thought the main reason is that people are trying to get ahead of the game and remortgage before interest rates go up again – as they are now widely expected to do.

Despite the rise in lending volumes, the CML said that the figures were underpinned by seasonal activity. Last year June lending was 12% higher than in the month before, and in 2005 June’s lending was 15% more than May’s.

Also, the figure for net lending, which takes out of the calculation people who are remortgaging, was said to be more low key by the CML.

The June rise comes on the back of a rise in mortgage approvals in recent months as people complete their deals. The CML expects the strong lending to continue beyond summer into autumn, again driven mainly by remortgages, as people come off their two and three-year fixed rate deals. The number of house purchases – the number of first-time buyers and people moving home – is expected to go down.

The British Banker’s Association (BBA) produced figures which agree with the CML’s thinking about net lending. Major banks’ net lending was £5.06bn in June, down from May’s 5.83bn, and below an average for recent months of £5.3bn. The Building Societies Association agreed, saying that its net lending was £1.18bn during June, compared with £1.89bn in June 2006, and approvals were also down, £4.69bn in June 2007, compared with £6.05bn in June last year before all the recent rate rises.

The director general of CML, Michael Coogan said: “Despite the record level of mortgage lending, there are signs that the market is feeling the cumulative effects of the five interest rate rises we have seen over the past year. This effect will become much more evident in the coming months as borrowers with fixed-rate mortgages come off their existing deal into a significantly higher interest-rate environment."

Borrowers are being advised not to overstretch themselves at a time when interest rates are going up. New borrowing should only be taken on if they know that they can afford it – having factored in potentially more expensive repayments in future.

The BBA said it has seen a reduction in lending for mortgages and on credit cards. Unsecured lending was pretty much the same as in May, when it had fallen to £0.5bn. A £100m fall in credit card borrowing had been countered by a similar rise in personal loans and overdrafts. In June credit card users repaid £73m more than they borrowed, and this was the 11th fall in 13 months, although down on the £386m reduction in borrowing on plastic in May.

Savings went up – deposits in banks up by £3bn in June, and holding with recent monthly rises in savings of about £3.1bn. No rise in unsecured lending and an increase in money held in savings appear to suggest that household budgets may be tightening, but are still in good shape.

Tom Smith
24th July 2007

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