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October record for mortgage lending

21st November 2006 |

Gross monthly mortgage lending hit back last month after a slowdown in September by setting a new monthly record, according to latest research.

But experts are warning that due to both this month's rise in interest rates and evidence on the ground, the current rate of growth may not continue at the same pace for much longer.

The Council of Mortgage Lenders (CML) calculates that a total of £30.3 billion was loaned out by mortgage providers in October, up four per cent on the figure for September but down by eight per cent from the overall record of £33 billion in August.

This increase has not surprised experts in the housing market because the end of the school summer holidays usually sees a pick-up as buyers have more time to house hunt and deal with the administrative issues concerned with purchasing a house.

However, the overall strength of the month's figures can be seen most clearly in its comparison with the same month a year ago; last month lending was up 12 per cent on October 2005.

Michael Coogan, director general of the Council of Mortgage Lenders, insisted that the new data showed that the UK property market continues to perform well.

"For yet another month the housing market is proving itself to be in robust shape. Housing demand and mortgage approvals have been strong over recent months, despite the rise in interest rates," he said.

"House price growth is also strong, so we expect to see lending remaining at high levels through the new year."

However, he was cautious about the outlook for the long-term, maintaining that this current level of strong and stable growth could not continue forever and would gently ease in the future.

"With interest rates rising for the second time in three months, we anticipate a modest slowdown in house sales and mortgage approvals as 2007 progresses," Mr Coogan explained.

Evidence on the ground suggests that this slowdown may not be as far off as the CML predicts.

A survey by Yorkshire Bank found that a third of first-time buyers admit that they would consider 'gazundering', the practice of reducing the offered price just before contracts are exchanged, as a way of reducing the price of a home.

Ed Stansfield, an economist for Capital Economics, said that it would be a "natural assumption" to think that the return of gazundering is indicative of a slowdown in the property market.

"If a first-time buyer feels that they're in a position where there is insufficient competition for the house then they've got the upper hand in the negotiations," he commented.

"That would clearly suggest that demand out there perhaps isn't as strong as some of the headline numbers would suggest."