The Building Societies Association (BSA) has reported that advances were down to £4.650 million in June, down from £5.136m in June 2006. Both the BSA and the Council of Mortgage Lenders (CML) claim that it is due to seasonal effects and borrowers' response to higher interest rates
The CML is anticipating further strong levels of lending, but with a growth in mortgage approvals, more borrowers exiting short term fixed-rate deals and a higher percentage of remortgaging are expected to be the trends.
Commenting, CML Director General Michael Coogan said: "Despite the record level of mortgage lending, there are signs that the market is feeling the cumulative effects of the five interest rate rises we have seen over the past year. This effect will become much more evident in the coming months as borrowers with fixed-rate mortgages come off their existing deal into a significantly higher interest rate environment.
"While the markets still expect one more interest rate rise before the end of the year, we believe the Monetary Policy Committee should carefully assess the impact of past rises on inflationary pressures before it takes further action. In the meantime, borrowers should be thinking seriously about how they will afford higher mortgage payments if they come out of a fixed-rate deal this year."
Brian Morris, head of Savings Policy at the BSA said: “The slow start to the summer has continued. Although 2007 started strongly, it seems the impact of successive interest rate rises is now being felt and is affecting affordability. Typically, building societies are maintaining robust lending criteria and this is a possible explanation of the recent slowdown in building society lending.
“Borrowers should be careful about overstretching themselves at this time of rising interest rates and take on new borrowing only if they are sure they can afford to service it. With many commentators expecting another rate rise soon, lending may well cool further over the remainder of the year and into 2008.”
