Mortgage lending slumps

Recent figures suggest mortgage lending has fallen by a third. Is the housing market really slowing down?

Mortgage lending has fallen by more than a third compared with last year, according to new figures.

The British Bankers Association (BBA) says that in October its members lent 44,105 mortgages for house purchases.

The figures suggest that rising property prices and higher borrowing costs have led to a significant slowdown in the housing market.

Borrowing figures are 19% down on September and 37% lower than October 2006 when more than 70,000 mortgages were lent. Re-mortgages also fell to 54,881, a drop of 17% on totals 12 months earlier.

Meanwhile, separate figures from the BBA suggest that while annual growth in credit card borrowing continues to grow, up 4.6%, repayments continue to outstrip new spending.

While new credit card spending reached £7.2bn in October, repayments totalled £7.4bn, implying that many borrowers are tightening their belts in expectation of tougher times ahead.

David Dooks, the BBA's director of statistics, says: "October's data provide evidence of a rapidly slowing mortgage market and of consumers limiting their personal borrowing.

"Pressure on household finances, the cumulative impact of interest rate rises over the last year, the expanded application of home information packs and the consequential impact of the credit crunch may well all have a part to play in suppressing current demand and supply."

Despite the trend to repay credit, the BBA says there is no major evidence of increased saving for a rainy day. Mr Dooks adds: "Personal deposits also remain below trend, as people continue to consider where they should hold their money in the light of the recent difficulties in the financial markets."

Housing experts have responded to these figures by calling on the Bank of England to cut its base rate sooner rather than later. Simon Rubinsohn, chief economist at the Royal Institution for Chartered Surveyors (RICS), says: "These figures highlight the emerging pressures on the housing market.

"The accumulating evidence is likely to strengthen the case for an early response from the Bank of England."

However, some experts point out that the BBA’s figures should not be looked at in isolation. Its members account for two-thirds of UK mortgage lending and may reflect factors specific to them, particularly Northern Rock's enforced decision to rein in its own lending.

By contrast, building societies have been able to attract a high proportion of savers’ money in the wake of the Northern Rock debacle. For example, Nationwide Building Society announced earlier this week that it had seen a sharp influx of funds.

Graham Beale, chief executive of Nationwide, says: "Inflows in the last six months amounted to £4.1bn, an increase of 96% on the same period last year. Trends for October and early November follow a similar pattern."

DISCLAIMER: Please note that any rates or deals mentioned in this article applied at the time of writing and may no longer be available/applicable today.

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