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Mortgage lending slumps as the fates conspire

Mortgage lending slumps as the fates conspire

Category: Mortgages

Updated: 11/03/2011
First Published: 11/03/2011

MONEYFACTS ARCHIVE
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Mortgage lending slumped in January as an unusual combination of factors took their toll on the housing market.

The number of loans approved for house purchase fell by 29% compared with December, and by 12% on January last year, the Council of Mortgage Lenders (CML) has revealed.

Although a fall between December and January is usually expected, the CML said a decrease of this magnitude is greater than seasonal factors alone would explain.

Instead, it suggests the effects of Government spending cuts are beginning to bite, and rising inflation and tax measures are putting pressure on household budgets, discouraging potential homebuyers from entering the market.

At the same time, it said December's extreme winter weather, and uncertainty over future interest rate rises, will also have contributed to a lack of movement in the market.

Although remortgage activity also dropped, the effect was not as pronounced as for home purchases.

On a more positive note, lenders were willing to let first time buyers borrow more in order to secure their first home.

The data showed first time buyers borrowed 80% of their property's value in January, compared to 77% in December.

"Pressures on household budgets have been increasing both in terms of take home pay, and indirect tax measures such as the VAT increase and recent inflationary pressures, so we were expecting a fall in transactions early in the year, and a flat mortgage market underpins our forecasts for 2011," said CML director general Michael Coogan.

"The bad winter weather and uncertainty over interest rate rises will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months. The market remains stable at low levels of transactions."

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