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UK Mortgage Lending Activity Shows Signs of Slowing

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Data from two respected bodies show that mortgage lending slowed in February, with the outlook for activity in the coming months easing too. The data from the British Bankers Association (BBA) and the Council of Mortgage Lenders (CML) highlight, yet again, a dearth of property for sale in the UK.

The CML’s February report showed gross mortgage lending totalled £18.2 billion, a 4.6% decline from January’s £19.8 billion total. Although, it was little changed from the £18.1 billion gross mortgage lending total achieved in February 2016.

“While it tends to be more correct to compare monthly mortgage lending data with the same month a year earlier than the previous month, there is a big decline in February from January this year”, said Pimlico estate agent Kubie Gold. “The details of the data, meanwhile, suggest that the home-mover market continues to suffer and the majority of mortgage lending is being led by first-time buyer and re-mortgaging activity.

The BBA reported a similar picture. Gross mortgage lending slowed to £13.4 billion from January’s £14 billion, although the February total was higher than the £12.8 billion total a year earlier. Net mortgage lending, meanwhile – which calculates all the repayments as well as the initial mortgages that are advanced – at £1.95 billion was little changed from January’s £1.94 billion, but much stronger than February 2016’s £1.5 billion.

Looking forward, the BBA’s mortgage approvals data – which give a loose indication of house buying activity in future months – also slowed. There were 42,613 approvals in February, down from 44,142 in January.

“This slowdown in mortgage approvals is in line with general expectations that the UK’s housing market won’t be as active this year as it has in recent years,” said Denhan Guaranteed Rent. “However, the continued lack of property for sale is likely to limit any price falls and keep average UK house prices pretty steady throughout 2017.”

Mortgage lending data are interesting as they can show the make-up of the housing market, but, they aren’t a certain indicator of what will happen in the future. Even mortgage approvals aren’t the perfect measure as some people buy homes without requiring a mortgage. And, in other circumstances, potential home-buyers who have a mortgage in place might not find the home they want before the initial six-month approval becomes invalid.

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However, as long as the Bank of England (BOE) keeps its key interest rate at a record low of 0.25% and property remains scarce, there’s little chance that prices will tumble as they have in the past. But, given the high level of house prices compared to average earnings, that’s something that many people might welcome.

“Low BOE interest rates encourage low mortgage lending rates which always helps to buoy any housing market,” said Proskips. “Combine that with a dearth of supply and the chance of a significant decline in property prices seems highly unlikely.”

It appears, then that in the face of the current backdrop to the UK’s housing market, prices should hold fairly steady, this year. Meanwhile, low interest rates should continue to encourage first-time buyers who have saved a large enough deposit and re-mortgagers who are impressed by the ultra-low rates on offer, to keep the UK’s mortgage market going throughout 2017.