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Mortgage lending increases slightly

The number of mortgages ticked up in February, shows the latest data from the Council of Mortgage Lenders.

The number of house purchase loans reached 24,300 in February, compared with 23,400 loans in January – a 4% increase.

Although the total mortgage lending in both January and February was the same at £3.1bn.

But historically activity remains very weak, running at around one-third of the average February total of 76,000 loans for house purchase between 2002 and 2007.

Remortgaging declined steeply with 35,000 remortgage loans, down from 44,000 in January- a 20% decline.

The CML expects demand for remortgaging to remain muted as lenders’ standard variable rates are attractive compared to new mortgage pricing, and house price falls continue to erode equity levels which will exclude some borrowers from the best remortgaging deals available to those with large
deposits.

There were 9,400 loans to first-time buyers – a 7% monthly increase -but significantly less than the 17,400 in February 2008.

The CML says the tight lending criteria remain a barrier to most first-time buyers. First-time buyers typically had a deposit of 25% in February, a new record.

First-time buyers typically borrowed 2.95 x their income, down from 3 x in January. The average first-time buyer loan was £95,000, down from £97,000 in January and £114,000 in February last year.

This decline reflects the change in house prices over the same period and the growth in the size of first-time buyer deposits, says the CML.

Lower income multiples and mortgage rates have made affordability considerably easier for those able to get a mortgage. Interest payments consumed 15.4% of the average first-time buyer’s income in February, down from 20.1% in February 2008 and the lowest proportion since June 2004.

There was a shift away from tracker products towards fixed rates, with 56% of new loans at fixed-rate, up from 49% in January, while 31% were tracker products, down from 38% in January.

Michael Coogan, director general of the CML, says: “These figures represent February mortgage completions. Recent mortgage approvals figures
published by the Bank of England show some signs of improvement at the beginning of the borrowing process, although activity is at a very low level historically.

“We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there
are some positive signs for later in the year.

“Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.

“We need further market measures to be introduced by the government around the Budget to encourage a mortgage market where all types of lenders – banks, building societies and specialist lenders, and large and small
businesses – are encouraged, and enabled, to commit more funds to the mortgage market if we are to enhance lending activity significantly.”

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