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Mortgage lending falls further in January

Mortgage lending activity continued to reduce in January with only 23,400 mortgages completed, down from 32,400 in December and 48,600 in January 2008, shows figures from the Council of Mortgage Lenders.

The decline in house purchase lending was spread evenly between first-time buyers and home movers.

There were 14,500 loans to home movers, down from 20,200 in December and 30,600 in January 2008.

There were just 8,900 loans to first-time buyers, down from 12,200 in December and 18,000 in January 2008.

Lending criteria were tightened further in response to the worsening economy and falling house prices, creating a barrier for many first-time buyers wishing to enter the market.

The typical first-time buyer deposit in January was 24%, the largest amount on record.

But at the same time lower interest rates and income multiples have made payments easier for those able to obtain credit. First-time buyers typically borrowed 3 times their income in January and the average loan was £97,000.

The typical first-time buyer spent 15.8% of income on mortgage interest payments, the lowest proportion since July 2004.

The average home mover borrowed £117,300 and spent 11.9% of their income on interest payments, the lowest proportion since March 2004.

Remortgaging activity increased with 44,000 remortgage loans worth £6bn, up from 41,000 loans worth £5.6bn in December.

Despite the modest increase month on month, we expect demand for
remortgaging to remain weak in 2009 as the most attractive option for many borrowers will be to stay on reversion rates in a low interest rate environment.

Gross lending declined to £11.7bn, the lowest monthly lending figure since April 2001.

Tracker mortgages increased in popularity, 38% of loans in January, compared with 35% in December, as the average tracker rate fell from 4.26% to 3.64% against a backdrop of lower official rates. For the first time since March 2005 the majority of new lending has not been on fixed rates; only 49% of new loans were fixed in January.

Michael Coogan, director general of the CML, says: “January and February are usually the quietest months in the mortgage market. The current withdrawal of many specialist, small and foreign lenders from new lending has created a huge gap in the capacity to fund mortgages to match consumer demand and this is continuing in 2009.

“People want to know why lenders are not lending. They are, but government schemes to restore the flow of funds are primarily focused on a few large banks and recent lending commitments by a few lenders cannot fill the gap overnight although we hope to see more funds flowing into mortgage activity later in the year.

“On top of the action to plug the funding gap and stabilise financial markets, we need to see a sustained revival of consumer demand. Mortgage affordability is good for those borrowers with deposits, but consumer confidence and lender appetite will remain muted in the face of rising unemployment and falling house prices.”

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