Decrease in Mortgage Lending

For the month of June, repayments of housing loans exceeded new lending for the first time since the same period of the previous year. Consequently, there was an increase in total lending to individuals by £0.3bn, which is the smallest increase in approximately a couple of years.

However, there was a decrease in the number of new mortgages approved for home buyers to 44,192, which is the lowest in 18 months. Moreover, approved mortgages but not yet lent decrease by 10 percent on June in the previous year.

In the previous week, the same figures were also issued by the British Bankers’ Association (BBA). BBA said that the decline in mortgage approvals was brought about by the wet weather in the month of June. Some events that also had an effect in the market include the Diamond Jubilee and Euro 2012 football tournament.

According to figures from HM Revenue and Customs (HMRC), although there was a decline in the lending activity, house sales across the UK increased for the month of June. Specifically, sales for the first half of this year was 11 percent higher compared with sales in the previous year.

This inconsistency is due to the fact that over 40 percent of home sales happen with no need for buyers to take on a mortgage. Therefore, completed sales can increase despite the decrease in borrowing.

Based on the recent figures from Bank of England, banks were planning to limit their mortgage lending much more in the following months, especially to borrowers with small down payments.

Due to the ongoing recession and euro crisis, a warning that lending might keep on declining this year was given by Mark Harris, chief executive of mortgage broker SPF Private Clients.

In addition, Harris said that although rates have dropped, loans with cheap rates are only available to borrowers that are capable of paying large deposits.

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