New lending stalls despite rise in approvals as clients pay off loans

1 September 2009

A higher number of borrowers paying off their mortgages has meant that net mortgage lending has fallen to its lowest level since October 2000.

Net mortgage lending rose by £1.6bn in July compared with an increase of £2.2bn in June and an average rise of £2.9bn in the past six months.

Gross lending grew from £8.1bn in June to £8.4bn, with the value of all mortgage loans approved climbing from £8.9bn in June to £9.7bn.

Mortgage approvals for house purchase have risen to the highest level since February 2008 at 38,181. This compares with the low of 17,593 seen last November.

Remortgage approvals are still weak at 30,600 but the BBA says the level of remortgage business is stabilising .

David Dooks, statistics director at the BBA, says: “The number of mortgages approved for house purchase each month by high street banks has continued to recover from last November’s low but new lending is being offset by repayments so net rises remain relatively weak.”

Nicholas Leeming, director of Propertyfinder.com, says that buyers want to come back to the market but new lending supply is not meeting demand.

He says: “House purchase approvals are starting to pick up but remain low in a historical context. Buyers are chomping at the bit to take advantage of attractive house prices but banks, awash with vast sums from the government and the Bank of England, are suppressing new lending and encouraging borrowers to repay existing loans.

“This saps dynamism from the house purchase system. Without a concerted effort from lenders to provide more assistance to buyers by providing finance, the recovery in the market is likely to be drawn out and painful.”

The BBA also says that lending to businesses has fallen, with loans to non-financial firms falling by a massive £4.1bn in July compared with a £300m drop in June.