Stamp duty change sees mortgage lending slump

Mortgage lending slumped to an eight-and-a-half-year low during January as the housing market suffered a lull following the end of the Government's stamp duty holiday, figures showed today.

The major banks advanced just £8.02 billion during the month, 26 per cent down on December's figure and the lowest level since May 2001, according to the British Bankers' Association.

The group blamed the fall on a combination of people rushing through purchases during December to beat the end of the stamp duty holiday, and the wintry weather during January hitting market activity.

Lending had been unusually strong during December, with advances totalling £10.92 billion, the highest figure for more than a year, during what is traditionally a quiet month for the housing market.

The rise was attributed to people buying lower value homes pushing through purchases before the stamp duty threshold fell from £175,000 back to £125,000 at the beginning of this year.

The figures are in line with data reported by the Council of Mortgage Lenders for January, which showed that total lending had fallen to a 10-year low of £9.1 billion.

David Dooks, BBA statistics director, said: "It was no surprise to see the January mortgage figures falling back from December, when transactions were being pushed through to beat the end of the stamp duty relief.

"There was a natural reaction in the January figures and the bad weather further suppressed market activity."

The BBA figures also suggested that lending is likely to remain subdued during the first quarter of this year, with the number of mortgages approved for house purchase falling to its lowest level for eight months of 35,083.

The figure is 23 per cent down on the level reported for December, which had been the highest for 26 months.

Loans in the pipeline for people remortgaging also dived to a 10-year low of 20,252 during January, while the number of people taking out buy-to-let mortgages or releasing equity from their property fell to its lowest level since records began in September 1997.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "January's marked relapse in mortgage approvals was undoubtedly the consequence of both the very bad weather and some activity having been brought forward to late-2009 to beat the price threshold for stamp duty on house purchases moving back down from £175,000 to £125,000 at the start of January.

"The marked relapse in mortgage activity in January reinforces our suspicion that house prices are likely to suffer a correction at some point in 2010 and they will be essentially only flat over the year."

Unsecured lending remained subdued during January as the bad weather put people off shopping, while demand was also lower following Christmas.

People spent £5.6 billion on their credit cards during the month but, once repayments of £5.9 billion were taken into account, outstanding debt rose by £261 million due to interest and charges.

Borrowing through personal loans and overdrafts contracted for the 14th consecutive month with people repaying £334 million more than they were lent in January.

Savings levels also held up well, with people increasing their deposits by £2.46 billion, down on the previous month's figure but broadly in line with the recent six-month average.