Mortgage lending at five-year high raising housing bubble fears
Gross lending jumped to £16.6bn in July, up 12% on previous month and 29% higher than same period last year
Mortgage lending hit a five-year high in July, and was almost a third higher than 12 months ago, according to new figures that could bolster fears that government schemes to inject credit into the economy risk fuelling another housing bubble.
The Council of Mortgage Lenders (CML) said gross mortgage lending jumped to £16.6bn in July – up 12% on the £14.8bn seen in June, and 29% higher than the £12.9bn achieved in July 2012. This is the highest monthly figure since October 2008.
The government’s Funding for Lending scheme, which marked its first anniversary earlier this month, has been credited with triggering some of the record low mortgage rates currently on offer, while the first phase of the Help to Buy homebuying scheme, launched in April, was recently declared “an instant hit” by the Department for Communities and Local Government.
Caroline Purdey, the CML’s market and data analyst, said: “An improvement in sentiment and activity continues to show in the UK housing and mortgage markets, with a more positive picture also starting to emerge in the economy. Our forward estimate of gross mortgage lending in July reinforces a growing evidence base of a strengthening in the housing and mortgage markets.”
She added that the CML’s latest research showed that “there have been positive signs among all categories of lending”, with loans to first-time buyers showing the most notable improvements.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the outlook for the housing market was continuing to improve. But he warned: “With returns on cash poor, buy-to-let investors returning to the market in droves, and government schemes to assist homebuyers, there is potentially the risk of a house price bubble. Borrowers must not get carried away, buy sensibly and take care not to overstretch themselves, whether they are planning to live in the property or rent it out.
“While the lending numbers are the strongest they have been since 2008, this will be a long, slow recovery. Lending levels are still running at a fraction of what they were at the height of the housing boom.”
Brian Murphy, head of lending at broker firm Mortgage Advice Bureau, said borrowers were benefiting from a boom in product choice. “With over 10,000 products on offer for the first time since the financial crash, consumers were spoilt for choice in July.”
He claimed that the additional funding made available via government initiatives had led banks and building societies to compete for business in order to hit ambitious lending targets. “Since the start of the Funding for Lending scheme began, rates have fallen by one percentage point across two, three and five-year fixes. The market is certainly ripe for picking, with the best choice of products and deals for years.”