Subdued mortgage market in July

Demand for mortgages in July continued to be weak in what is traditionally a strong month, according the Council of Mortgage Lenders (CML). There were 56,000 loans for house purchase (worth £8.4 billion) advanced in July, up from 52,000 (worth £7.7 billion) in June, and from 53,000 (worth £7.3 billion) a year ago.

While this reflects the seasonal rise in activity at what is usually a strong part of the year, these volumes still represent a very weak market.

The 28,000 remortgage loans (worth £3.5 billion) were unchanged from June and down from 40,000 (worth £4.9 billion) in July 2009.

Loans to first-time buyers declined to 19,400 (worth £2.4 billion) in July, from 19,700 (also worth £2.4 billion) in June and from 20,100 (worth £2.3 billion) in July 2009.

Having eased during the early part of the year, loan criteria have now tightened a little. First-time buyers put down average deposits of 24% in the month, unchanged from June but up from a recent trough of 21% in April and May. But low interest rates mean that interest payments continue to take up a relatively modest share of income. At 13.2% this was down slightly from the previous month and the lowest it has been since early 2004.

First-time buyers' share of the market was at 34% in July, down from 38% in June. This is the lowest proportion since before the credit crunch began in August 2007.

Lending to home movers picked up in July. There were 36,900 loans (worth £6 billion), up 13% in volume and 15% in value from June and 11% in volume and 20% in value from a year earlier.

Like first-time buyers, home movers have seen their average deposits rise again - from 33% in June to 35% in July. But their interest payments as a percentage of income have held steady at 9.6% - still the lowest share going back to the early 1970s.

The take-up of full repayment products has remained high for a year. In July, 90% of first-time buyers took out a repayment mortgage, compared to July 2007, before the credit crunch, when only 67% did. 72% of home movers and 70% of those remortgaging also chose a full repayment mortgage in July this year.

CML economist Paul Samter said: "The increase in the prevalence of repayment mortgages is likely in part to reflect the anticipation of regulatory changes by the Financial Services Authority to limit the availability of interest-only mortgages.

"More generally, lending criteria remain tight, underpinned by caution on the part of both borrowers and lenders in the light of continuing economic uncertainty."