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Lending increase as movers benefit from low rates

House purchase lending rose modestly in May. The 42,000 loans (worth £6 billion) were up 2% in volume and 3% in value on April and 15% in volume and 28% in value from a year earlier.

Remortgaging activity recovered a little as well in May. The 26,000 loans (worth £3.2 billion) were up 6% by volume and 10% by value on April but down 14% by volume and by value on a year earlier.

There were 14,800 loans (worth £1.8 billion) advanced to first-time buyers in May, up from 14,500 (worth £1.7 billion) in April and 13,700 (worth 1.5 billion) in May 2009. Their characteristics have changed little in recent months. In May they borrowed an average of 3.14 times their income and 75% of the value of their property but interest payments accounted for only 13.2% of their income, the lowest amount since the 13% of March 2004.

The numbers of home movers increased as well in May. The 27,100 loans (worth £4.2 billion) were up from 26,500 (worth £4.1 billion) in April and 22,800 (worth £3.2 billion) in May 2009.

The characteristics of these borrowers have also barely changed recently but they continue to benefit the most from low interest rates with interest payments accounting for only 9.5% of their income in May, the lowest percentage in 35 years of available data.

CML director general Michael Coogan commented:

“House purchase lending continues its recovery but positive comparisons with equivalent months a year ago look unlikely to continue. Activity picked up in the second half of 2009 due to the stamp duty holiday but with the government’s austerity drive picking up momentum we are unlikely to see a repeat of those buoyant numbers this year. Our forecast for gross lending in 2010 may now be looking a little optimistic."

Stuart Law of Assetz, said:

“The latest figures from the CML suggest that the property market continues to prosper, with house purchase lending increasing for the eleventh consecutive month and the cost of servicing a mortgage at its lowest for 35 years.

“Similarly, the latest Assetz House Price Watch, an amalgamation of the five major UK indices – CLG, Nationwide, Halifax, Acadametrics and Rightmove – reveals strong annual house price growth of 7.8% as well as stable growth over three and six months, rubbishing suggestions that the market is guaranteed to falter in the second half of this year.

“The period leading up to the election generated some uncertainty, taking the wind out of the housing market’s sails, but extrapolating this weakness for the next 18 months, as some commentators have done, is a little rash. The government’s austerity measures could help dampen house price growth next year, but continued low interest rates and a lack of supply in the property market, particularly the reduction in new build, are likely to continue to drive up prices modestly this side of Christmas and beyond. I still expect to see a modest 5% overall growth for 2010 as the positives continue to outweigh the negatives.”

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