Summertime dip in mortgage lending

Mortgage lending fell sharply last month, new figures revealed today, prompting concerns about the sustainability of the housing market’s recovery.

The Council of Mortgage Lenders said mortgage lending totalled £12.6bn during August, 13 per cent less than in July. While lending does tend to fall back in August, as activity in the housing market slows over the holiday season, last month’s total was a third down on August 2008.

Nicolas Leeming, a director of property website Propertyfinder.com, warned that despite the uplift in lending for home purchase seen over the summer, optimism had not fully returned to the housing market.

“The total value of mortgage lending remains woefully low,” Mr Leeming said. “The continued difficulties home buyers face in obtaining mortgage finance remain the biggest obstacle in the path of housing market recovery.”

The CML said it believed that the mortgage market had stabilised in recent months, but warned that there was unlikely to be a significant pick-up in lending during the course of this year.

“The prospects for wholesale funding markets are improving which could result in a gradual easing in constraints on the supply of funding over time,” said CML economist Paul Samter. “However, demand from consumers and a prudent approach to lending criteria are likely to mean that the market remains subdued.”

The latest mortgage data will compound concerns that Britain’s banking sector is not lending sufficient sums to kickstart a strong economic recovery. The Bank of England said lending to business had dropped in July, with the flow of net lending the weakest since records began in 1998.

Net lending to businesses fell by £15.5bn in July, the Bank said, following a £3.6bn drop the previous month. It also warned lending was likely to deteriorate even further. “Major UK lenders indicated that their stock of lending to businesses fell further in August,” it said.

Howard Archer, chief economist at HIS Global Insight, said: “Concerns over the threat to recovery prospects stemming from depressed bank lending to businesses are reinforced by the Bank of England’s [data].”