The Council of Mortgage Lenders estimates that gross mortgage lending reached £19 billion in October. This is 5% higher than September (£18 billion), and 8% higher than October last year (£17.5 billion). This is the highest lending total for an October since 2007 (£33 billion).

CML Gross Mortgage Lending

The Council of Mortgage Lenders estimates that gross mortgage lending reached £19 billion in October. This is 5% higher than September (£18 billion), and 8% higher than October last year (£17.5 billion). This is the highest lending total for an October since 2007 (£33 billion).

Expectations of the first interest rate rise in the UK have moved to Q4 2015, after the Bank’s Inflation Report revealed MPC members see inflation remaining below target for the next few years.

While the housing market has cooled in recent months, mortgage lending continues to be underpinned by positive factors.

Commenting on market conditions in this month’s Market Commentary, CML Economist Mohammad Jamei observes:

“The market is in a steadier state than it was earlier in the year. As the temporary impact of implementing the mortgage market review fades, a clearer picture of the mortgage and housing market is emerging. Nearly all indicators in the housing market align with our view of a gentle easing in market conditions.

“While the housing market has cooled in recent months, mortgage lending continues to be underpinned by positive factors. With expectations of the first interest rate rise moving to the fourth quarter of next year, as well as positive forecasts for growth, pay and unemployment, there is potential for market activity to gain traction in the new year.”

Housing and mortgage markets

Most house price indices describe a slowing in annual house price growth and some are showing negative month-on-month growth. Mortgage approvals fell for the third month in a row, suggesting weakening demand. On a more regional level, market surveys show that the London market is moderating.

While this is our near term view, it is by no means certain that this will become a longer-term period of weakness.

For example, back in August expectations of the first rise in interest rates were in Q4 2014. This would have caused potential borrowers to be more cautious about the effect on their mortgage repayments, as was reported by some lenders. These expectations have just recently been pushed back and we are now expecting the first interest rates rise towards the end of 2015, while expectations of the base rates are 0.6 percentage points lower by Q4 2016 than they were a few months ago.

Mortgage Rate Cut

This has been coupled with increased competition amongst lenders who have cut their mortgage rates.

Given these factors, as well as the more positive forecasts for growth, pay and unemployment, there is a potential for market activity to gain traction in the new year.

For the time being, the market is in a steadier state than it was earlier in the year. This fits together with our estimate of gross lending in October of £19.0 billion. This would be 5% up on the month in September when gross lending was £18.1 billion. The annual growth rate of 8% continues a trend over 2014 of slowing from nearly 40% year on year in January.