First year-on-year fall in lending for four years

Amanda Jarvis

October 20, 2004

The CML survey, which covers both banks and building societies, recorded a 4% drop in gross lending between August and September. And at £25.4 billion, gross lending in September showed the first year-on-year drop since October 2000, at nearly 2% lower than the £25.9 billion advanced in September 2003.

As in August, September's fall in lending reflected a sharp reduction in loans for house purchase. House purchase loans totalled £11.2 billion, compared with £12.8 billion in August. Lending for house purchase was 23% lower in September than the record £14.6 billion recorded two months earlier in July. Just 44% of total lending was for house purchase in September, down from 48% the previous month and from last September's figure of 47%.

Despite the marked reduction in lending over the past two months, figures for the third quarter continued to show a record value of £80.8 billion for total lending. Lending for house purchase stayed flat for the quarter at £38.6 billion, the same as in the second quarter. But both of these figures were buoyed by the exceptional record month of July.

By number, loans for house purchase showed a marked fall, dipping below the 100,000 mark for the first time since the traditionally quiet month of February. First-time buyers continued to account for about 29% of all loans for house purchase. But in such a quiet month this equates to fewer than 29,000 first-time buyer loans, compared with nearly 31,000 in August and nearly 32,000 last September.

Remortgaging held up, increasing to a monthly record of £11.5 billion in September compared with £11.0 billion the previous month and £11.3 billion last September. This is likely to reflect a strong appetite on the part of consumers to seek out good-value deals, especially as their earlier special deals mature, and the CML expects this to continue.

Fixed and capped-rate mortgages maintained their relative popularity, accounting for a combined 43% of new lending in September. The average new fixed rate in September was a little lower than the average new variable rate, and for the third quarter as a whole the figures were virtually identical.

Commenting on the figures, CML Director General Michael Coogan said:
“All the latest lending data reinforces evidence that the expected slowdown in the housing market is materialising. Remortgaging is holding up, but house purchase lending is slowing markedly. Data from other surveys corroborates the picture of an exceptional recent market that is now gently losing steam.

“At the same time, the Bank of England has been emphasising that interest rates may not yet have peaked. But unless there is a marked change in the direction of lending and house price data, which seems unlikely on the basis of recent evidence, it looks as if inflationary pressure arising from the housing market itself has now dramatically reduced.”

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