Mortgages Fall undermines hopes of recovery

The value of home loans granted by banks and building societies fell by 58 per cent in the year to May as homeowners shunned re-mortgaging deals.

Gross mortgage lending totalled an estimated £10.3 billion in May, down 2 per cent compared to £10.5 billion in April and down 58 per cent from May 2008, according to figures published today by the Council of Mortgage Lenders (CML).

There have been signs recently that more home-buyers are returning to the market, with estate agents reporting higher transactions volumes and record rises in buyer interest.

But the CML said that the rise in buyer activity could be being offset by a decline in the number of homeowners taking out new mortgage deals when their fixed-term deal comes to an end. A more detailed breakdown of the figures will be published in two weeks time.

Many banks and building societies have a standard variable rate or SVR that mortgages revert to once the fixed-rate term has come to an end. Many SVRs, which are pegged to the Bank of England base rate, have tumbled since autumn last year as the Bank cut rates sharply. They are now mostly more competitive than new fixed-deals on the market, prompting many homeowners to take advantage of the lower rate. Many lenders have raised the rates on their fixed-rate deals in recent weeks.

Paul Samter, economist at the CML, 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."