Strong remortgaging fails to hold back lending fall

Gross mortgage lending fell 2.9 per cent over the last 12 months to £17.9 billion, according to new data.

Figures from the British Bankers' Association (BBA) show the slowdown in lending continued last month and the level of mortgage loans approved – a key indicator of the future direction of the housing market – also fell.

In total 156,732 mortgages were approved – including remortgages – worth £18.8 billion, a 7.8 per cent fall in value.

The number of approvals for house purchases fell 33 per cent on a year ago, and the number of remortgage deals approved rose 5.5 per cent from February 2007.

The average mortgage size for a house purchase was £158,100. The UK's outstanding mortgage debt now stands at £558,161 million.

BBA statistics director David Dooks, said: “In an environment of tightening lending criteria, re-mortgaging, either to fix, re-fix, or reduce borrowing costs, has been a clear influence on mortgage data in the first two months of this year, resulting in mainstream lenders picking up market share."

He added the pattern of house purchase approvals numbers has changed markedly in the last few months with the share of remortgaging now close to half of all approvals.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said the moderate increase in net lending recorded – partly due to a fall in repayments – was unlikely to be sustained.

"Buyer enquiries (according to the latest Rics survey) have slipped back to the lows seen in the wake of the Northern Rock crisis and this trend is likely to persist through the spring.

"The recent sharp rise in Libor rates is indicative of the reluctance of banks to lend to each other and suggests that mortgage finance will remain in short supply for some time to come."

Mr Rubinsohn added strong remortgaging levels were due to a large number of fixed rate mortgage deals coming to an end.

"However, with lenders scaling back on loan-to-value ratios we expect a further drop in mortgage equity withdrawal over the coming months," he said.

"This is likely to hit homeowners looking for cheaper sources of credit to finance big ticket purchases."

BBA figures for consumer credit shows new credit card spending hit £7.3 billion on 105.4 million purchases in February, a rise of 5.2 per cent on a year ago, while repayments hit £7.7 billion – meaning the UK's credit card bill now stands at £30.9 billion.

New personal loans were worth £2.6 billion – down 6.9 per cent on February 2007 – while the UK's overdrafts now stand at £9.4 billion, a fall of £300 million.