August sees remortgaging boost to lending figures

The Council of Mortgage Lenders has revealed that lending continued to strengthen over the summer.

Gross mortgage lending rose by 9% to an estimated 27.5bn in August, up from 25.2bn in July. The rise is one of the highest figures on record, 4% higher than the 26.5bn of August 2004, and the highest figure since July 2004.

Overall, there was an increase in all types of lending, although the most pronounced increase was in remortgaging, which went up by 15% to 11.7bn in August, from 10.2bn in July, reaching its highest level since October 2003.

This increase probably reflects borrowers taking advantage of lower interest rates and remortgaging into cheaper deals, especially as a large number of people will have been coming to the end of their previous deals.

Proportionally, however, business remortgaging rose only slightly, from 41% in July to 43% in August.

Lending for house purchase rose by 6% to 12.5bn in August, up from 11.8bn in July, but down slightly on the 12.8bn recorded last August. But lending for house purchase accounted for 45% of lending, down from 47% in July and 48% last August.

The number of loans for house purchase rose from 96,000 in July to an estimated 101,000 in August. However, this was still below the 110,000 in August last year. First-time buyers accounted for 30% of this total, very similar to the proportion throughout the past year.

Further advances accounted for 8% of gross lending, broadly the same proportion as last month, but rose in terms of value by 11% from 1.9bn to 2.1bn. Further advances (typically used to finance home improvements) have been hovering around the 2bn monthly level since March.

Affordability maintained a similar picture to previous months. Typical first-time buyers borrowed around 87% of their property value, representing 3.22 times their income.

Typical movers borrowed 68% of their property value, representing 2.95 times their income.

The pricing of both fixed and variable-rate products continued to fall, however, with the average fixed rate in August at 5.23% and the average variable rate at 5.61%. The pricing differential between fixed and variable rates prompted a further increase in the popularity of fixed-rate business, which accounted for 54% of all loans in August, the highest proportion ever since monthly records began in 1998.

Michael Coogan, director general of CML, says: “The doom-mongers’ prophecies look to have been wrong, as lending has continued to strengthen over the summer. Although the market remains far from spectacular in terms of transaction numbers and house prices, the prospects of a significant market correction are receding.

“The fact that the housing market is holding up is likely to be welcome news for the MPC, as it struggles to reconcile the very different pictures emerging from different sectors of the economy. We continue to expect a moderate market for the foreseeable future.”