Rate rises beginning to slow growth in mortgage lending

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The Independent Online

UK mortgage lending accelerated at its slowest rate since November last month, providing the first indication that the Bank of England's May interest rate rise - the third in six months - may have had an effect on borrowers' behaviour.

UK mortgage lending accelerated at its slowest rate since November last month, providing the first indication that the Bank of England's May interest rate rise - the third in six months - may have had an effect on borrowers' behaviour.

In total, mortgage lending rose by £4.9bn in May, according to the British Bankers' Association - significantly below the average rise of £5.6bn a month, which has prevailed since November.

Following May's 0.25 per cent interest rate rise, the Bank of England increased rates by the same amount again this month. It is thought there was concern that previous rises were having little effect on borrowers' habits. Economists are now keenly anticipating June's borrowing figures. Ross Walker, a UK economist for the Royal Bank of Scotland, said it was probably too early to say that the market was now past its peak, but conceded that the figures may be the first sign of a levelling out in the mortgage market. "This could be an indication that we've reached a turning point, but you can't really assert that on one month's numbers," he said. "I think we've got to keep things in perspective here. Mortgage lending still rose by nearly £5bn in May, which is not much below the average of £5.6bn over the past six months."

According to the Council of Mortgage Lenders, the slowdown in lending was driven by a fall in the amount loaned for house purchases, as opposed to remortgage deals. The number of new house price loans fell by more than 12 per cent to 103,000 in May, whilst the number of people remortgaging increased slightly. Recent base rate rises have seemingly yet to be felt in the unsecured lending market, however, where growth was £1bn in May, broadly the same as the previous month. This was partly been driven by the fact that few lenders have responded to the base rate rises by lifting their own rates. Even the cheapest personal loan rates are considerably above base rate, and consequently provide much room for manoeuvre for the banks. As a result, lenders have been able to hold off before raising their rates.

Michael Coogan, the director general of the Council of Mortgage Lenders, said: "This survey and other recent data suggest that the housing market may well have begun to slow down. Reduced affordability, exacerbated by the cumulative effect of rising interest rates, is acting as a natural brake. But the under-supply of property, and the continued aspirations of most people to own their homes, makes it likely that house price increases will slow down rather than stop."

Elsewhere yesterday, Wilson Bowden, the fifth biggest UK house-builder, provided further confirmation of the strong performance in the housing market over the first half of the 2004. However, the company noted that "There are some signs that the market is becoming less heated."

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