Surprise increase in property lending last month masks subdued situation, especially for those without big deposits, reports show

February saw an increase in property lending in the UK

Property lending in the UK saw an ‘unusual’ increase in February as the fluctuation in the real estate market continues, the latest available figures show.

Gross lending for property loans rose by 6% in February compared with January to an estimated £9.2 billion, the Council of Mortgage Lenders (CML) said.

The increase comes after a slowdown in January when housing market activity was hit by the weather and the end of stamp duty relief.

But lenders said they expected an uneven market in the months ahead and the February lending figure is still well below the average during 2009 and 6% lower than mortgage lending in the same month a year earlier.

‘Lending remains relatively weak, suggesting that activity is still at low levels,’ said CML economist Paul Samter. The cold weather and the return to a £125,000 threshold for the payment of stamp duty at the start of the year led to a sharp dip in lending in January, he added and this explained the ‘unusual’ rise in lending in February compared with January, despite it being the shortest month of the year.

Samter added that analysts expect to see some emerging confidence in the UK economy, but that the economy would slow owing to action to tackle the fiscal deficit. This, together with a squeeze on banks’ and building societies’ mortgage funding, meant an uneven housing market in the months ahead.

However another report published yesterday says that although increased competition for customers is bringing borrowing mortgage costs a little lower, it is only doing so for those with big deposits and lending levels remain subdued.

The overall effective rate on new mortgages fell slightly in January and the major UK lenders continued to report some downward pressure on mortgage pricing due to increasing competition to lend, according to the Bank of England Trends in Lending Report.

It said the numbers of advertised fixed and floating-rate mortgage products have increased, including those with higher loan to value (LTV) ratios. ‘Estate agent contacts continued to report that the availability of mortgage finance had improved somewhat in recent months, though remained a restraint on activity,’ the report said.

But lenders said price competition was greatest where loan to value ratios were lowest. Products with loan to value ratios of 75% or less have seen some falls in spreads over the past six months. Spreads on very high LTV lending have widened, perhaps reflecting limited appetite among lenders for high-risk lending,’ the report added.

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