Paul Samter, economist for the CML, said: "The mortgage market started the year in good shape, with the underlying level of gross lending in January the second highest on record. And the forward-looking data paint a somewhat stronger picture than recent surveys, which have reported some easing in housing demand. The seasonal softening in the market makes it difficult to get a clear picture at this time of year, but the underlying data for mortgage approvals for house purchase have held up well in the face of rising interest rates. The number of approvals is down from the levels seen in the late summer and early autumn, but these were unexpectedly strong and the latest data are at or above the levels seen through most of last year.
"Indeed, with remortgaging activity picking up in recent months as borrowers have looked to protect themselves from the impact of rising interest rates, the overall value of mortgage approvals is at record levels. This means that gross lending will continue at or near recent levels for the next few months at least.
"There are also no signs that house price growth is moderating from the 10% reached towards the end of last year. Surveyors and estate agents report a lack of properties coming onto the market and this, together with continuing firm demand, will support house price growth in the months ahead. We have noted in the past the specific pressures behind house price growth in the London, South East and Northern Ireland markets. And the momentum continues to be strongest here.
"But it is also strong elsewhere. The only regions where house price growth may be losing some momentum are the North West, Yorkshire and Humberside and the South West. The outlook for interest rates is also more encouraging than a month ago. The Bank of England left interest rates unchanged at 5.25% at its February meeting and the February Inflation Report paints a benign outlook, with inflation expected to fall from 2.7% at present to a little below the 2% target by the end of the year. It looks increasingly likely that there will be, at most, one further rise in official bank rate this year. Rates along the yield curve have responded to this and market rates between two and five years have fallen back by between 0.15% and 0.2% over the past month.
"This means that fixed-term mortgage rates are likely to rise by less than seemed likely a month ago in response to the rise in market rates. This is good news for borrowers. Indeed, borrowers are benefiting from continuing downward pressure on mortgage rates relative to market rates for both variable and fixed-rate products, which is helping to limit the impact on affordability of the rise in market rates to date. And our data show borrowers continuing to favour fixed rate products, which will provide them with some protection if interest rates do rise.
"Our view of market prospects remains essentially unchanged from that published in December. We expect a modest softening in demand for house purchase and the number of mortgages for house purchase during the year in response to the rise in interest rates to date. But this will come to an end once it becomes clear that interest rates have peaked. And house price growth will continue to be supported by the still firm level of demand and shortage of properties available. This should mean that mortgage lending remains close to record levels through most of the year."
