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Lending for house purchase increased slightly from April to May, according to the Council of Mortgage Lenders (CML). Loans for house purchase increased by 4% in volume to 52,700, and by 2% in value to £7.9 billion; although both were 44% lower than May last year.
However, there was a steep decline in remortgages from April to May. There were 71,000 loans for remortgage, down 14% from April and 23% from May 2007. The value of remortgage lending declined by 13% in May to £9.6 billion, which represented 39% of all lending compared to 42% in April.
The trend shown in the CMLs lending data is backed up by the Communities and Local Government (CLG) index, which is based on housing completion prices. The CLG index fell by 0.3% month on month in May. House prices typically rise between April and May, averaging an increase of more than 1% on the month over the previous five years. The annual rate of house price inflation continued to decline, slowing from 4.9% to 3.7% in May.
Regional data show that house prices only rose in London and Scotland. The largest falls were seen in the North East, South East and Northern Ireland (-1.9%, -1.8% and -4.0% respectively), while the West Midlands and East reported smaller drops of -0.3% and -0.2%.
The CLG's numbers show a more moderate slowdown that numbers from the big lenders - Nationwide says house prices are down 6.3% year on year, while the Halifax reckons they're down 3.8%. It's worth remembering the CLG figures measure completion prices so the index is a lagging indicator and won't reflect the current state of the market for some months.
Meanwhile, the CML says the number of loans to first-time buyers rose by 4% from April to 19,200, but was 41% lower than May last year. Home movers took out 33,500 loans, up 4% from April, and down 46% from May last year. Gross lending declined to £24.5 billion, down 6% from April and 22% from May last year. This is the seventh consecutive month that gross lending has been down on year ago levels.
Affordability measures remained stable in May, but are still well below the peaks of last summer as those able to obtain mortgages are less stretched financially. First-time buyers typically borrowed 3.3 times their income, compared with 3.39 in July last year.
Seema Shah, Property Economist with Capital Economics, said, "The housing market correction is only in its early stages. The credit crunch shows no signs of easing, while the economic and labour market outlook is rapidly deteriorating. This will weigh heavily on buyer confidence. As such, we will almost certainly see further falls in all house price indices in the coming months."
08 July 2008 © Moneyextra.com
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