Mortgage lending is heating up

As the temperature gauge rises, so does the level of mortgage lending.

In May, new home loans reached a total of £28.7bn - the second-highest monthly figure on record according to the Council of Mortgage Lenders (CML), and almost a third higher than in May 2005.

The rise is supported by "the strength of the London market and strong consumer confidence", it said.

This sunny view of the property market is backed by the British Bankers' Association and the Building Societies Association, which both report high lending levels for May.

The CML added that there had been a "strong take-up" of fixed-rate mortgage deals during the past couple of months.

With the Bank of England base rate at 4.5 per cent, unchanged since August 2005, borrowers are keen to lock into attractive deals amid fears that interest rates will rise in the near future, the CML said.

Some 71 per cent of the home loans taken out in April were fixes - 2 per cent higher than in March and 17 per cent more than in April last year. (The popularity of fixes has come at the expense of discounted variable rates and tracker loans.)

However, if you want the peace of mind of a fixed-rate deal, move quickly as "activity is pretty hectic and the [rate] direction is up", says Louise Cuming of the price-comparison service Moneysupermarket.com. "In the last month, [online lender] First Active has moved its two-year fixed rate from 4.49 per cent to 4.69 per cent and then up to 4.85 per cent."

This is down to movements of "swap rates", the cost to lenders of borrowing from one another. Earlier this month, two-year swap rates fell below 5 per cent, prompting the expectation that lenders would cut the cost of fixes for borrowers.

However, two-year swap rates moved back up last week in a sign that the money markets are now expecting the base rate to rise sooner rather than later - meaning more expensive deals.

"Lenders have raised their fixed rates accordingly, although there are still some two-year fixes below 5 per cent," says Melanie Bien of broker Savills Private Finance.

She picks out a two-year deal from Portman building society at 4.59 per cent and a two-year loan from Nationwide building society at 4.65 per cent.

For longer-term deals, Mark Chilton at broker Purely Mortgages picks out a five-year fix from First Active at 4.99 per cent, and a 10-year one from Kent Reliance building society at 4.98 per cent.