Mortgage lending reaches record high despite affordability clampdown

18th July 2014


Mortgage lending has increased 10% in the past quarter thanks to the seemingly unstoppable rise in house prices, but experts have warned the UK is still far from a fully functioning home loan market.

Latest figures from the Council of Mortgage Lenders (CML) show banks and building societies made record high amounts of home loans, advancing an estimated £17.6 billion to borrowers in June, a 17% increase on the same month last year, and a 10% increase on first quarter lending. When comparing second quarter 2014 with the same period last year, lending grew 21% from £41.9 billion.

Although the figures are rising, CML chief economist Bob Pannell said recent initiatives to stem lending and address mortgage affordability could hit the UK, as well as a looming rise in interest rates.

This year, the government has given new powers to the Bank of England’s Financial Policy Committee (FPC) to rein in both the Help to Buy scheme and limit the number of high loan-to-income loans banks are allowed to make. The regulator also implemented its mortgage market review (MMR) that will make mortgage affordability tests stricter.

‘The macro-prudential interventions announced by the FPC in late June are finely calibrated and precautionary but could nevertheless reinforce April’s mortgage market review in tipping the UK towards a more conservative lending environment,’ he said.

‘It is difficult to gauge the short-term direction for house purchase activity and mortgage lending more generally, given unknown regulatory impacts and uncertainty as to when the first in a series of interest rate increases will take place.’

Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA) said ‘we are still some way off a fully functioning mortgage market, even with a 10% quarterly and 21% annual increase in gross lending’.

He said the new powers given to the FPC meant ‘there is still room for muted growth without the risk of careering out of control’.

Williams said while lending has been made safer due to ‘a strong safety harness’ being fastened around mortgages, borrowers should act to secure the best rates before interest rates begin to rise.

‘The reality for borrowers is that mortgage pricing is likely to creep further upwards in the second half of the year,’ he said. ‘With a higher base rate on the cards and a shortage of sale properties still a reality, there is no sensible rationale for any further action to cool mortgage activity – certainly not while the full effects of recent changes are still unknown.’

Brian Murphy, head of lending at the Mortgage Advice Bureau, said ‘the clock is ticking down on cut-price borrowing’ and ‘aspiring buyers will be conscious that their mortgage costs may be significantly lower if they can buy before rates – and house prices – climb any higher’.

‘Despite all the speculation, buyers should keep a clear head given that rate rises are likely to be fractional at best,’ he said. ‘There will certainly be no overnight shock and there is still plenty of time to seek advice on securing a good deal.’


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