Lending for house purchase totalled £11.5 billion in August (the highest figure since CML monthly records began), accounting for 48% of total lending. This compares with £11.0 billion (45%) in July, and £10.8 billion (52%) in August last year. The proportion of lending for house purchase was just 35% in April and May this year.
Remortgaging was still strong, however, at £9.4 billion (40% of the total). This was lower than July's £10.5 billion (43%), but up on last August's £8.2 billion (40%).
This month's results mark a new era in the Survey of Mortgage Lenders. Not only has the survey questionnaire changed, but a number of lenders are now contributing data on 100% of their mortgages rather than just a 5% sample. This means the CML is now able to give more detailed pricing information about different types of mortgages.
In August, the average rate charged on a new variable rate mortgage was 3.94%. Interestingly, the average rates charged on mortgages fixed for 1-2 years and 2-5 years were very similar to this. But the average rate charged on a mortgage fixed for more than five years was 4.27%.
Average initial interest rate charged by type of interest
This pricing differential helps to explain the recent popularity of short-term fixed rates. In August, three quarters of home-buyers who took out fixed rate mortgages chose ones that were fixed for 1-2 years, a fifth chose 2-5 year products but only 4% picked ones longer than 5 years. As the CML has consistently asserted, UK consumers are very price-sensitive. The pricing profile of longer-term fixed rates (primarily driven by the cost of longer-term fixed rate funding) is significantly less attractive to consumers. This is the main reason why the CML's response to the Miles review on fixed-rate mortgages this week saw little scope for a mass migration to long-term fixed-rates in the absence of a specific Government incentive or subsidy.
Commenting on the figures, CML Director General Michael Coogan said:
"The latest figures continue to tell a story of a housing and mortgage market that is buoyant, but difficult for first-time buyers to enter. But the swing back in house purchase lending supports the view that the housing market saw a resurgence in confidence following the end of the war in Iraq, further amplified by the unexpected interest rate cut in July.
"The housing and mortgage markets have remained stronger for longer than we expected earlier this year. But we continue to expect a slowdown in house price growth - early evidence of this is already emerging. And people borrowing now should factor in an expectation of higher interest rates next year."
