Mortgage lending hits heights as house prices set for continued rise

British banks and building societies increased the amount of mortgage lending in October by 8% compared to the previous month, with the highest monthly figure since the 2008 credit crunch.

Gross mortgage lending in the UK reached £21.8bn in October, according to an estimate by the Council of Mortgage Lenders (CML), which was well up on September's total of £20.1bn and was predicted to continue in coming months.

The CML data was a positive indication that housing market activity was still on the up despite a dip in mortgage approvals in September reported by the Bank of England.

In addition to the month-on-month rise, the CML calculated that mortgage lending rose 19% from the £18.4bn in October 2014.

“As lending in the regulated mortgage space picked up over the summer months, the pace of recovery has improved," said Bob Pannell, the CML's chief economist.

"This looks set to continue over the closing months of the year with the factors helping support this recovery continuing to be low inflation, strong wage growth, an improving labour market and competitive mortgage deals."

Economist Howard Archer of IHS Global Insight said he expected house prices to see solid increases over the coming months amid firm buyer interest supported by a shortage of properties and decent economic fundamentals such as increased earnings growth, high employment and elevated consumer confidence.

"Nevertheless, the upside for house prices is expected to be constrained by more stretched house prices to earnings ratios, tighter checking of prospective mortgage borrowers by lenders and the probability that interest rates will start rising gradually during 2016."

He noted that data from Halifax showed the house price-to-earnings ratio reached a seven-and-a-half year high of 5.35% in August and remained close to this at 5.31% in October, well above the long-term average of 4.13.

"However, higher interest rates are unlikely to have a major dampening impact on the housing market as even if they do start to edge up in 2016, the Bank of England is stressing that the increases will be gradual and limited," Archer concluded.

Richard Sexton, director of chartered surveyors e.surv, added that re-mortgaging was enjoying an autumn boost due to further delays to the BoE's interest rates hike.

He noted that improving economic health had significantly improved the position of first-time buyers – and lenders are responding to this.

"First-timers are no longer seen just as higher risk lending, but as a valuable investment. This is greatly encouraging news, continuing September’s trend when approvals to small-deposit borrowers reached its highest proportion since October 2008.”