British mortgage lending down 2%

Mortgage lending fell back by 2% during May despite ongoing signs that activity in the housing market is beginning to recover.

A total of £10.3bn (€12bn) was advanced during the month, down from £10.5bn (€12.25bn) in April and 58% lower than in May last year, according to the Council of Mortgage Lenders.

The group said the decline in overall lending was likely to have been driven by a further fall in the number of people remortgaging, with this offsetting a slight pick up in advances to people buying a new home.

Figures for April, the latest month for which a breakdown is available, showed that only 34% of advances went to people who were remortgaging, the lowest proportion since December 2007.

At the same time, lending to people buying a property jumped to 43% of the total, a level last seen in August 2007.

Record low interest rates are putting many people off remortgaging, as their lender's standard variable rate, which they revert to at the end of a fixed-term deal, is often lower than the remortgage rates available.

The tighter lending criteria being employed by banks and building societies also mean that many homeowners are struggling to qualify for a new mortgage, particularly those who have seen the equity they have in their property eroded by house price falls.

Council of Mortgage Lenders (CML) economist Paul Samter said: "Underneath the headline gross lending figure, it's likely that a moderate improvement in house purchase lending in May has been offset by very low remortgaging volumes as borrowers stay with existing deals.

"While recent signs from the housing market have been more encouraging, we do not anticipate a significant recovery in activity in the coming months.

"Lending volumes appear to have stabilised at extremely low levels, but the weak labour market and lenders' limited access to funding will constrain activity for some time yet."

Today's lending figure contrasts with a recent run of positive data on the housing market, with both Halifax and Nationwide reporting price rises during May.

The National Association of Estate Agents also released data today showing that there were four potential buyers chasing every property for sale during May.

It said the average number of househunters that estate agents had on their books reached its highest level since September 2007 when the market downturn began.

The group added that the pick-up in interest from potential buyers continued to translate into sales during the month, with estate agents selling an average of 10.4 homes each, the highest level since October 2007 and the fifth consecutive monthly rise.

However, despite signs that house purchase activity may have passed its low point, economists have continued to warn that the market is not out of the woods yet, with many predicting further house price falls due to rising unemployment and the ongoing problems in the mortgage market.