UK mortgage lending growth slows

UK house price rises and mortgage lending growth is moderating as recent interest rate increases take their toll, reports released on Monday showed.

In its latest survey, property website Rightmove said the average asking price for a house was £237,361 in May, up just 0.4 per cent from April, and the smallest gain this year.

This took the annual increase in house prices to 13.1 per cent, down from 15 per cent the month before.

Price rises are being restricted as more properties come on to the market. This is partly because sellers are looking to beat the June 1 deadline after which they will need to produce a home information pack, said Rightmove.

“Whilst we would expect any rush to be in the next two weeks, new instructions per estate agent in the last two weeks are 4 per cent up on last year, a substantial turnaround to this year’s average of 10 per cent to 15 per cent down,” said Miles Shipside at Rightmove.

Rising property prices and dearer borrowing costs are also curtailing demand for home loans. The British Bankers’ Association said net mortgage lending rose by an underlying £5bn in April, down from the £5.1bn increase seen in March and below the recent monthly average of £5.4bn.

David Dooks, BBA director of statistics, said:”High house prices and increasing monthly repayment costs are causing a slow down in the mortgage market and people are using money from their accounts instead of borrowing to meet their spending needs.”

Unsecured personal borrowing was unchanged in April, after falling by £100m in March. Underlying borrowing on credit cards fell by £100m and loans and overdrafts were up by the same amount.

“Lower mortgage demand, weaker deposit growth and little change in personal loans or credit card borrowing all point to people paying more attention to their finances,” said Mr Dooks.

Commenting on the Rightmove report, Richard McGuire at RBC Capital Markets said: “These data are on the soft side and may well prompt speculation UK housing is beginning to feel the weight of the Bank of England’s tightening campaign.”

Howard Archer at Global Insight said that taken together “there are clear signs from the data that higher interest rates are beginning to rein in households’ borrowing.”

Separately, the Office for National Statistics said that the government finances have enjoyed a better than expected start to the fiscal year.

VAT receipts hit £8.5bn in April, their second highest level on record, reflecting sturdy consumer spending.

This helped public sector net borrowing to fall to £1.1bn compared with £2.8bn in for the same period last year.

Stripping out net capital investment, the current budget surplus was £200m, against a deficit of £900m in April 2006.