Lending for house purchases down

Higher borrowing costs contributed to a decline in gross lending in September, with the bulk of the impact being felt on lending for house purchase rather than remortgaging, according to data from the CML's regulated mortgage survey.

September's total of £30.6 billion was lower than August's (£34 billion) but higher than a year ago (£29.2 billion in September 2006). At £12.7 billion, house purchase borrowing was lower than in both the preceding month (£16.2 billion) and in September last year (£13.9 billion).

But remortgaging and other lending remained buoyant in September. At £11.1 billion, remortgaging was higher than in August (£11 billion) and in September last year (£10 billion). And the strength of buy-to-let helped sustain other lending, which totalled to £6.8 billion, the same as in August but higher than in September 2006 (£5.3 billion).

The increase in borrowing costs in September reinforced a trend which began in early summer, and reflected the Bank of England's decision to raise rates in May and July. But the main effects of tougher conditions in funding and credit markets only began to affect mortgage approvals in October, so today's figures reflect conditions before the problems associated with Northern Rock emerged.

The average mortgage rate was 6.02% in September, compared with 5.91% in August. As a result, affordability worsened for both first-time buyers and movers. Mortgage interest payments consumed 20.4% of income for first-time buyers (up from 20% in August) and 17.5% for movers (up from 17.3% in August). Borrowing by both groups declined in September. There were 28,400 loans to first-time buyers, worth £3.8 billion (compared with 34,800, worth £4.7 billion, in August). And movers took out 52,400 loans, worth £8.9 billion (compared with 68,000, worth £11.5 billion, in August).

Commenting on the figures, the CML's director general Michael Coogan said: "The data shows that higher interest rates are now beginning to slow the housing market, in line with our recently published forecasts. Looking forward, we expect remortgaging to continue to hold up as borrowers coming off fixed rate deals look to re-finance. However, market conditions may mean that mortgage customers see an increase in costs, and the Bank of England's decision not to reduce rates earlier this month will have disappointed many borrowers. Looking forward, affordability is likely to continue to constrain buying activity, which we expect to remain subdued. But rates have now reached their peak and a move downwards will help ease some of the pressure on household finances."