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Fixed rate mortgages gained in popularity in June

House purchase lending increased significantly in June. There were 52,000 loans advanced (worth £7.6 billion), up 19% in volume (23% in value) from May 2010 and up 14% in volume (27% in value) from June 2009. This is now the twelfth consecutive month in which lending has been higher than its year-earlier levels.

Lending for remortgage also increased, though only modestly, in June. There were 27,000 loans for remortgage, worth £3.4 billion, up from 26,000 (worth £3.2 billion) in May 2010 but down from 34,000 (worth £4.2 billion) in June 2009.

For the second quarter as a whole, there were 136,000 house purchase loans, worth £19.7 billion. This is 20% higher (by volume and value) than the last quarter and up 17% (by volume) and 30% (by value) than quarter two 2009.

For remortgaging, the second quarter saw 77,000 loans (worth £9.6 billion), up 2% by volume, with no change in value, from the first quarter, but in stark contrast to house purchase lending, the figure was down 20% (by volume) and 19% (by value) from the second quarter of 2009.

There were 52,200 loans (worth £6.2 billion) to first-time buyers from April to June, up from 43,400 (worth £5 billion) from January to March and 85,300 home mover loans (worth £13.5 billion), up from 70,700 (worth £11.2 billion).

Credit criteria have become a little more fluid in recent months but remain tight overall, in the context of continuing business and market constraints.

CML economist Paul Samter said:

"For the time being, the effects of government spending cuts have yet to make an impact on mortgage demand, and activity continues on its upward trajectory.

"But we still expect house purchase activity to be muted in the coming months. Both consumer demand and lending capacity remain distinctly difficult to call, especially in the light of the government’s austerity measures and their possible impact."

Jonathan Moore, director of easyroommate.co.uk said:

“The number of buyers opting for fixed rates has continued to head north as borrowers become more cautious. The slight decrease in the price of fixing has played a part, but anxiety over inflation and a potential hike in interest rates has been the key driving factor. Buyers are moving away from tracker mortgages as they don’t want to face a sudden jump in monthly mortgage payments. While fixing may mean mortgages are comparatively more expensive in the short-term, higher monthly repayments can be met by renting out a spare room, which can contribute up to £4,250 tax free annually towards mortgage costs. 

“Although the lending market has shown consistent signs of recovery in the last quarter, it will be a marathon not a sprint, and the economic environment will add further hurdles in the short-term.  Spending cuts and tax increases will not only provide a difficult economic climate for lenders, they will impact on would-be buyers’ household finances – and ability to afford to buy their own homes.  Lenders need to continue improve the deals on offer for first-timers to ensure that the recovery in the lending market doesn’t stall.”

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