Slight recovery in mortgage lending

Their was a slight uplift in mortgage lending during May, according to the Council of Mortgage Lenders (CML), but a full recovery is still somewhat distant.

While there was a four per cent increase in the number of deals agreed from April to May, with 52,700 mortgages agreed, this remains 44 per cent lower than May 2007.

Similarly the two per cent increase in mortgage lending by value, to some £7.9 billion, remained 44 per cent below the same period last year.

"Lending levels continue to be lower than last year and any recovery is still some way away, with little sign of the special liquidity scheme increasing the flow of funds to the industry or lowering the cost of funds as hoped, commented CML director general Michael Coogan.

Worryingly, there was a steep decline in remortgaging from April to May.

There were 71,000 loans for remortgages during the month, down 14 per cent from April and 23 per cent from May 2007.

The value of remortgage lending also declined by 13 per cent in May to £9.6 billion, which represented 39 per cent of all lending compared to 42 per cent in April.

In contrast, the number of loans to first-time buyers rose by an encouraging four per cent from April to 19,200, but again this was 41 per cent lower than May last year.

This and other vulnerable groups continued to be priced from the market by the high loan-to-value (LTV) rations sought by lenders, as well as a more general liquidity shortage.

First-time buyers typically borrowed 3.3 times their income, compared with 3.39 in July last year.

Home movers took out 33,500 loans, up four per cent from April, and down 46 per cent from May last year.

Gross lending declined to £24.5 billion, down six per cent from April and 22 per cent from May last year. This is the seventh consecutive month that gross lending has been lower than its position a year before.

Finally, fixed-rate mortgages increased in popularity in May, accounting for 66 per cent of all new loans, up from 59 per cent in April – despite becoming relatively expensive.

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

Chris O'Toole