Mortgage lending slumped in January

Mortgage lending slumped to its lowest level in 21 months at the start of this year – but banks and building societies still expect the market to strengthen in 2015.

An estimated £14.3 billion-worth of home loans were handed out in January, marking the lowest monthly total seen since April 2013, figures from the Council of Mortgage Lenders (CML) show.

The latest total marks an 11% tumble compared with January last year, when mortgages with a collective value of £16.1 billion were advanced. It also represents a 14% slide when compared with the £16.6 billion-worth of mortgages handed out in December 2014.

But CML said it stands by a previous prediction that mortgage lending will reach £222 billion this year as the economy continues to recover, compared with a total of £204 billion in 2014.

Explaining January’s drop-off in lending, the CML said that it follows a period towards the end of last year when the number of mortgage approvals taking place slowed down compared with earlier in the year.

In the early months of 2014, there was an unexpectedly large upswing in housing market activity as more low-deposit mortgages appeared on the market as a result of schemes like Help to Buy, against a backdrop of growing consumer confidence in the economy generally.

But in April, stricter mortgage lending rules were introduced, which forced lenders to ask mortgage applicants more detailed questions about their spending habits in order to make sure they could truly afford their mortgage repayments and cope with any increase in interest rates. There were some signs of disruption to the mortgage market as lenders adjusted to how they should interpret these new rules.

However, more recently, there has been evidence that the market is poised for another lift in activity. A fresh mortgage price war, which broke out between lenders last autumn, has intensified further this year, with many lenders offering their lowest ever rates on certain deals.

Meanwhile, the Government’s overhaul of stamp duty in December, which has made the tax cheaper for the majority of home buyers who are liable to pay it, has raised expectations that more people will be encouraged to buy and sell homes as a result.

The CML’s chief economist Bob Pannell said: “The softer pace of approvals through the second half of last year contributed to the relatively weak pace of mortgage lending in January.

“Although seasonal factors will continue to weigh on activity levels for a while longer, we expect the underlying picture to pick up over the coming months, in line with stronger earnings and employment, gentle interest rate trends and recent stamp duty changes.

“As we forecast at the end of last year, gross mortgage lending remains on course to reach an expected £222 billion this year.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said lenders are busy competing for business as they are “keen to get off to a good start” in early 2015 as the looming general election adds an element of uncertainty as to what will happen in the market later this year.

He said: “While January and February can traditionally be quiet times for the housing market, lenders are keeping busy undercutting each other on mortgage deals. Rates are astonishingly low, and yet lenders continue to reduce them.”