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Mortgage lending still 'subdued'

Thursday, 18 June 2009 9:59 AM

Mortgage lending declined by two per cent from April to May, according to figures out today.

Gross mortgage lending statistics from the Council of Mortgage Lender's (CML)showed the mortgage market was "still subdued", as lending totalled £10.3 billion, down from £10.5 billion in April.

The figures now put gross lending down 58 per cent on May last year.

However, the CML warned that as gross mortgage lending includes lending for house purchase and remortgage, "then even if house purchase activity is showing a slight lift it will not be fully reflected in overall gross lending when remortgaging is declining - as indicated in recent approvals data from the Bank of England".

Despite house price indices, including the Halifax and Nationwide, indicating a recovery in the housing market in recent weeks, lending figures such as these have indicated the availability of the home loans are still being held back in the struggling economy.

While house prices have seen a boon from the limited supply of properties, the low numbers of deals going through suggests the market is still anemic.

CML economist Paul Samter said: "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.

"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."

The lending figures also showed remortgaging had declined in recent months, as attractive reversion rates and tighter lending criteria had drawn lenders to better deals.

Howard Archer, chief UK & European economist at Global Insight, said: "The overall evidence suggests that buyer interest is picking up markedly helped by the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage interest rates, but this is only slowly translating into increased house sales. Consequently, housing market activity is still very low by past norms and at a level consistent with falling house prices.

"Elevated and still markedly rising unemployment, muted wage growth and an unwillingness of many people to commit to buying a house when they still have serious concerns about the outlook are all factors that are likely to continue to limit the upside for the housing market for some time to come.

"Meanwhile, it continues to be very difficult for many people to get mortgages, particularly first-time buyers - and this situation is likely to improve only gradually."

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