Mortgage lending falls steeply in January as seasonal slowdown holds back activity

19th February 2015

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Mortgage lending dipped markedly in January but hopes are rising that the market slowdown is close to bottoming out.

While the start of the year is traditionally a slow period for the housing sector, the Council of Mortgage Lenders estimates that gross mortgage lending reached £14.3bn in January, which not only represents a 14% decrease from December’s total of £16.6bn but is 11% lower than the £16.1bn lent over the same period last year.

The trade body’s chief economist Bob Pannell said: “The softer pace of approvals through the second half of last year contributed to the relatively weak pace of mortgage lending in January. Although seasonal factors will continue to weigh on activity levels for a while longer, we expect the underlying picture to pick up over the coming months, in line with stronger earnings and employment, gentle interest rate trends and recent stamp duty changes.

“As we forecast at the end of last year, gross mortgage lending remains on course to reach an expected £222bn this year.”

Looking at the overall market
 chief UK and European economist at IHS Global Insight Howard Archer asserted that despite January’s data, he believes that the weakness in housing market activity is close to bottoming out and expects activity to pick up to a limited extent as 2015 progresses.

He said: “With housing market activity seen picking up to a limited extent from the recent lows, we forecast house prices to rise by a solid but unspectacular 5% in 2015.”

Archer expects support for housing market activity to come over the coming months from the Stamp Duty reform, very low mortgage rates, elevated consumer confidence, a pick-up in earnings growth and rising employment.

He noted: “Under the Stamp Duty Reform enacted in December, it is estimated that 98% of house buyers will now pay less stamp duty. Furthermore, it currently looks very possible that the Bank of England will hold off from raising interest rates until 2016. It is also possible that limited supply of houses will provide support to house prices in some regions over the coming months..”

Nevertheless he added however that activity is still likely to be constrained by more stretched house prices to earnings ratios, and tighter checking of prospective mortgage borrowers by lenders.

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