Gross mortgage lending subdued in December

The figure is 18% lower than £13.3 billion in December 2009, although comparisons are distorted as some households brought forward house purchase activity in the closing months of 2009 to take advantage of the stamp duty concession expiring at the end of the year.

Lending totalled £34.4 billion in the fourth quarter, down from £37.9 billion in the previous quarter and 11% lower than the last three months of 2009 as a whole (£38.7 billion).

For 2010 as a whole, lending totalled £136.3 billion, slightly above our annual forecast of £135 billion. However, this is down 5% from £143.3 billion in 2009 and the lowest annual total since 2000 (£119.8 billion).

In the CML’s monthly market commentary published today, the CML acknowledges that recent inflationary pressures have increased the possibility of a rate rise sooner than previously expected. However, the CML observes that most of the leading indicators show that the UK growth rate can be expected to slow markedly in the first half of this year, and the CML therefore expects that even if there is a rise, the base rate is unlikely to exceed 1% this year.

CML economist Peter Charles says:

“Money market rates have recently moved higher in anticipation of a rise in base rate and some lenders have recently reflected these increases in their product pricing. Against this backdrop, consumer demand may be weaker than we would otherwise have expected. Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders. Consequently we believe there will be little change in the level of arrears this year, and we do not anticipate revising our current arrears forecast.”

Paul Hunt, managing director of Phoebus Software said: “Although property is currently highly affordable, that affordability remains largely theoretical while lenders maintain their cast iron grip on mortgage finance.  These figures are a clear indication that looming rises in unemployment and spiralling inflation have left lenders convinced borrowers’ finances will not remain stable through 2011.  The trouble with inflation is not that it will cause a large rate rise in the near future, as GDP forecasts remain subdued, but that increasing prices for food, clothes and especially transport are leaving less room in household budgets for servicing mortgage debt.  On the demand side, the recent strengthening of sterling will be taken by many as an indicator that a rate rise is on the horizon, which could convince some would-be borrowers to keep their powder dry in the coming months.

“If there’s a silver lining it’s that, despite the pressures faced by borrowers, demand for mortgages has so far held up relatively well.  Where mortgage products are offered, there are still plenty of buyers willing to take them up.  If the private sector is able to absorb job losses following the public spending cuts and inflation is brought under control, lenders could find that borrowers appear far more secure as the year progresses”.

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