But despite a monthly increase, lending for house purchase was lower than in the same month last year.
Gross mortgage lending totalled £19.3 billion in March, up from £17.6 billion in February and £16.1 billion in March last year. These are strong results, although it is worth noting that the year-on-year rate of growth has been slowing down over the past few months. Remortgaging accounted for 50% of all lending in March, and totalled £9.6 billion, up from £8.7 billion in Febraury and £6.0 billion in March last year. But loans for house purchase accounted for only 40% of all lending at £7.8 billion. Despite being higher than last month’s £7.3 billion, lending for house purchase was 13% lower than in March last year.
At the same time, fixed rates apparently became much more popular in March. Fixed rates accounted for 47% of new lending, compared with 39% last month and 30% last March. This is probably mainly because the gap between average new fixed rates and average new variable rates has narrowed. With the average new fixed rate in March at 4.5% and the average new variable rate 4.2%, increased numbers of borrowers seemed prepared to pay the 0.3% “certainty premium”.
Last month the gap between fixed and variable rates was higher, at 0.52%, and a year ago it was higher still, at 0.84%. As the difference in funding costs between long-term and short-term money has narrowed, this has made fixed rates more attractive to borrowers. This reinforces the CML’s view that a key issue for the Government’s review of the consumer and market appetite for long-term fixed rates is the comparative cost of variable and fixed rate funds.
