Mixed messages from mortgage lenders as inflation creeps up
Published On 20 March 2007
Several different groups which represent various UK mortgage lenders have published contradictory figures about the state of the UK housing market.Some lenders are saying new figures indicate recent interest rate are having their desired affect and slowing demand. Others, however, believe that the figures show that interest rate rises have had little impact and the demand for mortgages remains strong.
According to data published by the British Bankers' Association (BBA), the underlying net amount of lending in the UK increased by only 0.7 per cent in February - reaching £1,297 billion.
Similarly, net mortgage lending rose only by £5.2 billion. Despite these small increase the BBA note that this was less than the £5.4 billion increase in the previous month and the six month average of £5.7 billion.
Equally, unsecured personal borrowing also seems to be slowing, according to the BBA figures. In February, this type of lending fell by £0.2 billion - after a £0.3 billion fall the month before.
"Since last November, when mortgage lending peaked, we have seen three successive months of mortgage lending rising by less than in the previous month, with February's rise below the recent trend, suggesting a moderating demand in the market," explained David Dooks, the BBA's director of statistics.
"Consumer appetite for credit remains very subdued. Credit card borrowing was flat in February following recent falls and there was little personal loan demand."
However, other lending groups have published figures which directly contradict the BBA's data.
According to the Building Societies' Association, gross advances from their members amounted to £4.2 billion in February - compared to £3.1 billion in the same month last year.
"Yet again building societies saw record lending in February, with gross lending the highest ever recorded for that month. Approvals (loans agreed but not yet made) were also the highest February on record," Adrian Coles, the organisation's director general, said.
"These are strong figures, but we may be seeing the peak of the market. The recent rate rises are still to work through fully into the mortgage market. Therefore, mortgage lending figures might become a little more subdued as the year progresses.
"However, a reasonably strong economic outlook, especially continuing robust employment, should ensure that there is still demand for mortgages, just not at record highs," Mr Coles concluded.
Similarly, the Council of Mortgage Lenders (CML) also reported that mortgage lending in February remained particularly strong.
CML Director General Michael Coogan said: "This is the highest February lending figure on record, and reflects the continuing strength of the market and the strong desire of many people to get a foot on the property ladder or move house.
"Recent speculation about whether or not interest rates will go up seems to have had little impact upon lending levels and we still expect gross lending to reach around £360 billion this year."
The announcement that inflation increased by 0.1 per cent in February to 2.8 per cent could put additional pressure on the Bank of England to increase interest rates again in an attempt to cool house prices. This move could make mortgages even more expensive for many consumers.
