UK mortgage lending up by a fifth, says lenders' group

Wet weather
Image caption The wet weather stalled some housing market activity, the CML has said

UK mortgage lending surged to its highest monthly level since October 2008 in May, with activity even surprising lenders.

Figures from the Council of Mortgage Lenders (CML) recorded gross mortgage lending of £14.7bn in May.

This was up 21% on the previous month and 17% higher than in May last year, assisted by government schemes to boost the market.

The data comes shortly after building societies warned of a price "bubble".

Bob Pannell, chief economist at the CML, said that the wet weather may have delayed the usual spring bounce in housing market activity, when buyers head out to view homes.

"Our forward estimate does imply somewhat stronger house purchase activity than we had been expecting. This may reflect a degree of pent up sales following the extended spell of poor weather earlier this year," he said.

'Recovery underway'

The figures only show a big leap in one month, which is not necessarily typical of a shifting trend.

However, a number of housing market reports have suggested a pick-up in activity, and commentators say this echoes rising interest from buyers since the start of the year.

"Recovery in the housing market is well underway," said Mark Harris, chief executive of mortgage broker SPF Private Clients.

"This comes as no surprise: finally, the pick-up in business that estate agents and mortgage brokers have been reporting since the start of the year is filtering through to the official figures."

The CML said that house purchases had picked up, and pointed to schemes such as Funding for Lending for bringing down the cost of mortgages.

The government-backed scheme offers cheap funds from the Bank of England to banks and building societies under the proviso that the money is lent out to individuals and businesses.

The Bank of England, the CML, and major lender the Halifax have also reported an "encouraging start" to the Help to Buy scheme.

Its first phase, which started in April, allows buyers to take out an equity loan with the government, which enables them to put down a deposit of just 5%. The scheme will be extended in January.

However, earlier this week, the Building Societies Association warned of the danger of a house price bubble, unless the government had an exit strategy for the scheme.

'No boom'

The CML figures show that total lending in the first five months of the year was 8% higher than during the same period last year.

Image caption The CML said that government schemes had helped to boost the market

However, the UK housing market is still driven by rising sales and prices in the South East of England and especially London.

"It has been a long time coming, but the mortgage market is functioning again. The property market is still patchy, but both are a world away from the dysfunctional despair in which they spent so long," said Ashley Brown, director of mortgage broker Moneysprite.

Brokers also stress that this does not mark a return to the runaway housing market seen before the credit crunch.

"Deposit requirements are still higher than they were prior to the banking crisis, and lenders are reluctant to fling open the doors to high loan-to-value borrowers," said David Whittaker, managing director of Mortgages for Business.

"Inflation is high, wage growth is low, and savings rates lower still. All those factors will make it hard for the recovery in lending to reach a higher level and get back to where it was prior to 2008."

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