House boom adds £6bn to mortgage lending

Growth in the UK mortgage market showed no signs of abating in March, as gross secured lending rose £6bn to more than £475bn, compared with a recent average rise of £5.5bn a month, according to new figures from the British Bankers' Association.

Speaking at a public policy and research conference yesterday, Richard Lambert, a member of the Monetary Policy Committee, said house price gains are now the biggest uncertainty facing the UK economy. He conceded that rate rises in February and November did not appear to have had any material effects on the market. However, he said it would be wrong to raise rates to shock consumers, especially with inflation well below the MPC's upper limit of 2 per cent.

The Council of Mortgage Lenders said gross advances for March totalled £24.5bn, up from £20.5bn in February, and 25 per cent higher than the same month last year.

The number of first-time buyers also showed signs of recovery, with a 13 per cent increase on a year ago, according to the CML. However, first-time buyers still represent only 31 per cent of overall mortgage lending, down from a high of almost 50 per cent six years ago.

Remortgaging accounts for 41 per cent of all mortgage lending, as an increasing number of homeowners switch lenders to secure cheaper rates. Seven years ago, just 18 per cent of home loans were remortgages.

A report by Datamonitor, the financial analyst, yesterday, predicts remortgaging will represent half of the UK mortgage market by 2008. However, Karina Purang, the report's author, believes the growth of remortgaging will now start to slow. "Huge increases experienced in the past three years cannot be sustained," she said. "If consumers believe there will be further base-rate increases, take-up for short-term, fixed-rate mortgages will increase, thus restricting remortgaging."

The CML said variable rate mortgages account for three-quarters of all home loans, up from 50 per cent last summer.

Unsecured lending also rose according to the BBA, up £1.4bn, including a £500m increase in credit card borrowing.