Mortgage lending falls in January

UK mortgage lending fell 29 per cent in January from December’s level, new data has shown.

Just 28,500 loans were extended to property buyers, a fall of 12 per cent on January 2010, a report from the Council of Mortgage Lenders found.

The fall is being attributed to “an unusual combination of factors” including public sector spending cuts, bad weather and higher inflation.

The CML said the fall was greater than could be explained by seasonal factors alone.

Howard Archer, chief economist 
at Global Insight, said the data “indicates that the housing market started 2011 on the back foot and supports our belief that house prices are headed down further over the coming months.”

“We expect house prices to fall by around five per cent in 2011 and ultimately decline by around ten per cent from their peak 2010 levels,” he said.

The drop in lending was balanced evenly between first-time and regular buyers, though experts said the loan-to-value level also rose, giving first-time buyers a better buying opportunity.

“Affordability for first-time buyers is improving. The average LTV has risen to its highest level in more than two years and mortgage repayments represented the smallest proportion of first-timers’ incomes since January 2004,” said David Newnes, estate agency managing director of LSL property services.

Brian Murphy, head of lending at broker Mortgage Advice Bureau, said the fall reflected a normal pre-Christmas slowdown as well as low consumer confidence and extreme weather.

“All three factors caused a reduction in applications in late 2010, which resulted in the fall in actual loan advances during the first month of the year,” he said.

“February, by contrast, proved far more buoyant. Activity overall witnessed a marked increase in February over January both among house buyers and those looking to refinance existing arrangements.”