Summer boost to UK property market hides lack of lending in real estate

Continued reluctance by lenders in the UK to improve lending is set to create a slower number of property sales in the latter part of the year but a more stable real estate market is predicted for 2010.

Although the market picked up over the summer months lending is still historically very low, the Council of Mortgage Lenders is warning.

Its latest figures show that gross mortgage lending totalled £16 billion in July, a 26% increase from £12.7 billion in June but this is still down 36% from £24.9 billion in July 2008.

It is evidence of a modest improvement in the market over the summer after an exceptionally weak winter, says the organisation that represents 98% of banks, building societies and other residential mortgage lenders in the UK.

And it points out that it was the lowest July lending figure since 2001 and £11 billion lower than the July average over the previous seven years of £27 billion. It does not expect a dramatic improvement and lending volumes remain consistent with its forecast for £145 billion in gross mortgage lending this year.

Also lending usually picked up in June and July when there is typically a strong seasonal rise over the summer months as a whole. The increase is likely to have been driven mainly by a rise in house purchase activity, rather than remortgaging activity, as low reversion rates continue to limit the attraction of refinancing.

‘Most of the indices point to house prices rising modestly over the summer months. The CML’s July gross lending estimate of £16 billion is the highest level in nine months and consistent with the rise in house purchase approvals,’ said CML economist Paul Samter.

‘But the bounce-back in activity from the extreme weakness around the turn of the year, coinciding with a seasonal bounce, is limited in how far it can go against the current back-drop. We expect improved sentiment to support the market, but a further significant pick-up is unlikely with so many obstacles in place,’ he continued.

‘As a result, we anticipate some seasonal slowing in lending volumes and housing transactions over the latter part of the year and the picture of a slow but more stable market to emerge,’ he added.

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