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February 26, 2008

More housing gloom as mortgage lending continues to be subdued

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by Kay Mitchell

More housing gloom as mortgage lending continues to be subdued

Latest statistics from the British Bankers Association (BBA) show that mortgage lending last month by the UK’s biggest banks continued to be subdued.

BBA figures show that its members approved 44,000 new mortgages for house purchase last month. Although that it was a slight improvement from December’s figures, it was still 31% lower compared with 12 months ago.

However, the BBA added that re-mortgaging, where people change lenders but do not move, amounted to 49% of all new lending by the banks in January – a new record.

David Dooks of the BBA said higher gross mortgage lending last month largely reflected very strong re-mortgaging activity as borrowers sought out the best deals available.

Although house prices and new loans for house purchase appear to be subdued as the housing market slows, the strength of re-mortgaging would suggest competition for mortgage business and switching remains high, added Mr Dooks.

Earlier this month, the Council of Mortgage Lenders (CML) noted the growing prominence of re-mortgaging business for lenders.

Last week saw a number of high-street lenders scrap the 100% plus mortgage meaning first-time-buyers will now have to find a deposit. Previously, these types of mortgages have been criticised for letting people take on more debt.

Crisis-torn Northern Rock withdrew its high-profile 125% home loan deal that had accounted for a large chunk of its lending last year.

Nationwide, the country’s fourth-biggest mortgage lender, announced yesterday that homebuyers should prepare themselves for a new era of mortgage lending of putting down a huge deposit. The lender is adding a further 0.2% to the prevailing interest rate, so a 2-year fixed rate deal will now be charged at 6.05% instead of the 5.85% rate charged for loans for less than 75% of the valuation.

Howard Archer of Global Insight, said the modest rise in January mortgage approvals reported by the BBA does little to dilute the impression that housing market activity remains muted and continues to be pressurised substantially by both stretched affordability and tightening lending practices.

The news follows the announcement that property prices have fallen for a fifth consecutive month in February, according to Hometrack.

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