Mortgage lending shows slight increase

Gross mortgage lending increased fractionally during March, according to the latest statistics from the Council of Mortgage Lenders (CML).

In the UK market as a whole gross lending increased to an estimated £26.3 billion in March - up five per cent from the figure of £25 billion recorded in February.

However, despite the apparent signs of a recovery, the level represents a fall of 17 per cent from the £31.7 billion lent in March last year.

Furthermore, the CML would normally expect a 20 per cent increase in lending between February and March, and thus such a moderate increase suggests the market is still in decline.

"Lending on completed transactions is currently running at levels considerably lower than a year ago," said CML director general, Michael Coogan.

"However, the picture for mortgage approvals for new business and prospective lending levels in the next few months is worsening."

Estimated gross lending for the first quarter of 2008 was £77.2 billion, down eight per cent from £83.9 billion in the first quarter of 2007.

"We await the eagerly anticipated announcement of further action by the Bank of England to respond to these rapidly worsening market conditions," continued Mr Coogan.

Speculation has been growing this week the Bank of England has been working on a scheme to allow lenders to swap their mortgage-based assets for government bonds, with an announcement expected next week.

"Early action is needed if we are to be able to maintain a market in which UK borrowers continue to be able to access mortgage funds at reasonable prices," explained Mr Coogan.

"As mortgage costs increase, it remains important for any borrower with potential financial difficulties to speak to their lender as soon as possible, and preferably before they have missed a payment."

The figures suggest a continuing deterioration in the market, argues Howard Archer, of analysts Global Insight.

"March's increased slowdown indicates that mortgage activity was being increasingly pummelled by the combination of stretched affordability and tighter lending conditions even before the recent escalation of the credit crunch," said Mr Archer.

"The low level of mortgage activity is not only a consequence of slowing demand for houses due to the elevated affordability pressures facing potential house buyers, but also increasingly due to very tight credit conditions leading to markedly fewer and more expensive mortgages being available."

And things are likely to get worse still, argues the Royal Institution of Chartered Surveyors (Rics).

"The decline seen in today’s figures does not mark the low point in mortgage lending during this cycle," said Davis Stubbs, Rics senior economist.

"The uncertainty amongst banks is preventing many would-be home buyers from accessing the housing market, and is making re-mortgaging very difficult for some existing home owners.

"We need urgent action by the government and the Bank of England to restore the willingness of mortgage companies to lend."