There is growing evidence that mortgage lending activity, and the housing market, are sitting on a plateau.

CML Gross Mortgage Lending

Gross mortgage lending reached £17.8 billion in September, the CML estimated.  This is 10% higher than September last year (£16.2 billion), but 1% lower than August (£18 billion).

Commenting on market conditions in this month’s Market Commentary, CML chief economist Bob Pannell observes:

“Uncertainty over when we will see the first increase in UK base rates is exacerbated by weaker growth prospects in several major economies, including the eurozone.

“Recent indicators and policy actions corroborate our view of a gentle easing in market conditions. There is growing evidence that mortgage lending activity, and the housing market, are sitting on a plateau.”

Expectations of UK base rates have been moving lower and later, amid developing gloom about growth prospects in some major economies and geo-political uncertainties, allied with weak inflationary conditions.

There is growing evidence that mortgage lending activity, and the housing market, are sitting on a plateau.

Recent Financial Policy Committee comments and actions suggest that its concerns about possible housing market developments may be abating a little.

Housing and mortgage markets

Recent indicators and policy actions corroborate our view of a gentle easing in market conditions.

A common thread across many surveys is that, as Londons pronounced recovery runs out of stream, house price growth nationally is slowing. While some past housing cycles have seen significant ripple effects radiating out from London, we think that this is less likely this time round. The capital’s housing market has been propelled by a number of unique factors, in addition to the general support afforded by improvements in the wider economy, consumer sentiment and mortgage credit availability. As such, we judge that markets away from London and the south east will for the most part continue to experience fairly modest recoveries.

When thinking about activity levels, it is important to bear in mind that a strong market recovery took hold through 2013, and that this is now colouring the nature of annual comparisons.

By way of example,  we reported 65,000 loans for house purchase for August. Even though this represents the second strongest monthly outturn since 2007, it was only 8% higher than a year earlier and, on that metric, was the weakest performance this year by far.

HMRC figures for all residential property transactions, including those bought for cash, clearly indicate that activity is on a plateau.

Remortgage Activity

With remortgage activity continuing at relatively subdued levels, industry gross lending figures are closely echoing developments in the housing market, and so also describe something of a plateau. 

Our forward estimate is that gross lending was £17.8 billion in September, down just a shade from the month earlier. Year-on-year growth matched the 10% reported in August but, as for house purchase lending, marks a significant easing in growth rates from earlier in the year.

Elsewhere, the survey does anticipate that firms would pass on lower funding costs and compete more fiercely for business in the final quarter. We have seen some evidence of this in recent weeks, as lenders launch more competitive mortgage offers, and this is one factor that seems likely to support demand through year-end.