Mortgage lending in steady rise say banks

Mortgage lending rose slightly in March but borrowers continued to pay off loans and overdrafts, according to the major UK banks.

The number of mortgages approved for house purchases stood at 34,905 in March, up 5% on the previous month, the British Bankers' Association said, adding that low interest rates continued to affect consumer behaviour.   The figures showed that there has been a 5.7% annual drop in lending to non-financial companies by the major banks.

There has been some evidence of the traditional spring bounce in the housing market in recent weeks with estate agents and surveyors reporting a big rise in the number of people putting their homes up for sale.  But the Council of Mortgage Lenders said that activity would still be relatively subdued this year and repeated its warning that lenders' finances were likely to be severely restricted for several years.

The British Bankers' Association (BBA) figures show that gross mortgage lending in March - of £8.7bn - was less than the average of the previous six months.

The number of mortgages approved for house purchases was subdued compared with the latter months of 2009, when there was a surge in interest owing to the final months of the temporary stamp duty "holiday".  But, even though that rush had "worked through" the system, house purchase approvals were still 20% higher than in March 2009.

The continued historically low UK interest rates - and as a result the low mortgage rates - have been seized on by homeowners looking to pay off their mortgages more quickly.  The BBA said that banks were "actively encouraging" borrowers to use any surplus cash to reduce their borrowing.

"Homeowners are reducing mortgage debt by making, or maintaining, higher repayments using the extra cash generated by lower mortgage rates," said David Dooks, the BBA's statistics director.

Remortgaging continued the steady increase seen in recent months, but remained at very low levels, as people stayed on cheap standard variable rates rather than signing up to new fixed-rate deals.

However, various reports have shown that two-year fixed-rate mortgage deals are at their cheapest for 12 months.

Financial information service Moneyfacts said the aver age rate was 4.63% for a typical £150,000 repayment mortgage.

"The open for business sign is back in the window as lenders improve the availability of mortgages," said Michelle Slade, of Moneyfacts.

"Lenders are becoming more active in the mortgage market, which is welcome news for borrowers as increased competition is one of the overriding factors in driving rates downwards."

The best deals still required a 25% deposit, she said, which affected affordability for first-time buyers. 

Posted at 07:45PM Apr 27, 2010 by Kelly Board in Mortgages & Housing Market  |  Comments[0]