Increase in home loans fuels rate rise fears

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Homebuyers took out a record level of mortgage debt last month, casting doubt on speculation of a slowdown in the housing market and reinforcing forecasts of another interest rate rise next month.

Homebuyers took out a record level of mortgage debt last month, casting doubt on speculation of a slowdown in the housing market and reinforcing forecasts of another interest rate rise next month.

The British Bankers' Association said mortgage lending rose by £6.5bn in June, a 27 per cent surge and the biggest gain since comparable records began in 1997.

Separate figures from the Council of Mortgage Lenders showed that loans for house purchase hit a record high £13.6bn, a 40 per cent rise in the same month a year ago.

The figures are the first to point to an upturn following a series of reports indicating that the UK's red-hot property market is starting to slow.

The Royal Institution of Chartered Surveyors said on Monday that growth in house prices slowed to a 10-month low in June.

"The signals in the housing market are mixed at present," said Michael Coogan, the director general of the CML. "Early evidence suggests consumer appetite is starting to turn but it may be another few months before the lending surveys reflect that."

The Building Societies Association said approvals for new mortgages hit an eight-month, pointing to further strong lending in the months ahead as those transactions are completed. The Bank of England is expected to raise interest rates next month to 5.75 per cent as part of its strategy to cool inflationary pressures in the consumer economy.

Economists said yesterday's figures would strengthen its hand in raising rates, although they expected the market to slow as rising house prices and mortgage bills forced first-time buyers out of the market. "The strength of mortgage lending highlights that it is premature to be certain the housing market is slowing markedly despite much of the recent evidence," said Howard Archer, an economist at Global Insight.

"With unsecured personal lending also relatively strong in June, a quarter-point interest rate hike by the Bank of England seems even more likely."

Some analysts said they would put more weight on forward-looking surveys such as RICS rather than the historic picture provided by yesterday's lending data.

Simon Rubinsohn, chief economist at Gerrard, said: "If the RICS survey is anything to go by, this trend will become more pronounced over the coming months. We would expect the mortgage lending numbers to gradually reflect this more subdued picture."

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