Mortgage lending still subdued, lenders say

image captionMortgage rationing is still keeping potential buyers out of the market

Mortgage lending is still subdued, according to the latest figures from the Council of Mortgage Lenders (CML).

Total lending stood at £12.9bn in September, which was 2% lower than in August but 4% up on September last year.

But over the third quarter of the year total lending was 15% higher than in the second quarter, while still 2% down on a year ago.

The CML warned that lending might turn down again in the coming months.

"The housing market is very sensitive to wider household confidence, and this seems likely to weaken over the coming months in response to the latest spike in consumer prices and headline unemployment figures," said the CML's chief economist Bob Pannell.

Andrew Montlake, of mortgage brokers of Coreco, said the subdued state of the market had flattened out traditional seasonal variations.

"What is becoming clear however, is that lenders are increasing their product pricing, in one case upping their standard variable rate, due to increases in funding costs," he said.

"It therefore seems that we are now passing the nadir for mortgage rates which may spur some customers to take action before these historically low products disappear."

Rising costs

The latest quarterly Bank of England publication Trends in Lending contains a warning that mortgages may become more expensive if banks continue to find it hard to raise fresh funds on the wholesale financial markets.

"Funding costs for wholesale debt had increased according to some major UK lenders, which they reported primarily reflected concerns about the vulnerabilities associated with the indebtedness of several euro-area governments and banks," the Bank said.

"Lenders noted, however, that if current conditions in term wholesale funding markets did not improve then higher funding costs were likely to be passed through to loan pricing in the coming months."

Richard Sexton, from chartered surveyors e.surv, said lenders were already moving away again from lending to people with small deposits.

"With the supply of credit so restricted, there is almost no scope for them to grow their loan books, so they are understandably playing it safe and focusing on targeting borrowers with big deposits," he said.

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