Mortgage lending is set to slow after reaching record levels during July, the British Bankers’ Association (BBA) said today.
According to the BBA, total new lending by major banking groups in the UK was £10.98bn during July.
The figure was boosted by first-time buyers getting on to the property ladder and home-owners remortgaging to take advantage of low repayment rates offered by banks.
Once redemptions and repayments were taken into account, loans increased, in seasonally adjusted terms, by a record £3.5bn, having increased by about £3.2bn in both May and June.
However, the BBA said that the increase in mortgage lending might now have reached its peak, with the pattern in previous years suggesting that demand would “moderate” towards the end of the year.
BBA chief executive Ian Mullen said: “Customer appetite for new mortgage products was strong in July and consequently the major banks’ higher lending reflected an increase in their share of the mortgage market. However, looking ahead, demand may be peaking.
“Though approval numbers for remortgaging continued to strengthen, those for house purchase or equity withdrawal were slightly lower than in June.”
The BBA’s figures exclude mortgages advanced by building societies.
More than 209,000 mortgages with a total value of £12.58bn were approved during July, just under 2% lower than June’s figure.
Loan approvals for house purchases were 5% lower in value than the previous month, with the average value of a loan dropping by £400 to £77,700, although the average loan was still 17% higher than in July 2000.
The total value of loans for remortgaging jumped by 5% compared to last month to a record monthly total of £3.98bn, though loans for home improvements and equity withdrawal dropped by 2%.
Repayments and redemptions were strong during July, totalling £6.79bn.
Lending on credit cards, personal loans and overdrafts also increased last month, rising by £992m, up from June’s increase of £923m but below May’s rise of £1.18bn, which was the biggest seen this year.
Demand for new personal loans increased by 12% to £3.56bn, though strong repayments meant the increase in the amount banks lent during July was just £503m higher than the previous month, well below June’s increase of £657m.
Commenting on today’s BBA figures, Simon Rubinsohn, chief economist at stockbroker Gerrard, predicted that house price growth would slow down towards the end of the year as unemployment increased.
He said: “While we have repeatedly made the point that the cost of financing mortgage debt remains historically affordable, the more fundamental driver of house prices is the state of the labour market.
“We suspect that unemployment will gradually turn upwards as the year draws to a close and that this will result in a moderation in mortgage demand and a slackening in the pace of house price inflation.”
He added that the drop in new mortgage approvals for house purchases reported by the BBA was in line with figures published by RICS last week, which said members had seen a drop in inquiries about properties for sale.
EGi News 28/08/01
