Mortgage lending increases 7% in August, says CML

Mortgage lending in the UK increased month-on-month in August, as fears over the fallout from the Brexit vote on the housing market proved to be "wide of the mark”, the industry body for bank and building societies said on Thursday.

Gross mortgage lending increased by 6.8% in August to an estimated £225.5bn, from July’s £21.1bn, the Council of Mortgage Lenders (CML) said.

With mortgage lending growing 15.1% year-on-year, the highest August number since 2007, economists said this undermined the belief that UK house prices would decline in the coming months.

CML senior economist Mohammad Jamei said the widely voiced fears recently about the housing market have proved to be wide of the mark as prospects for house buying activity after the EU referendum in June look “slightly subdued” in comparison to late 2015 and early 2016.

However, sentiment in the housing market recovered in August due to stronger-than-expected transaction numbers and in the CML’s gross lending estimate.

Jamei said: “This recovery in sentiment is likely to be down to a number of different factors, including the Bank of England’s (BoE) monetary stimulus and its introduction of the term funding scheme in August.”

In the wake of the Brexit result, the BoE cut interest rates to 0.25% from 0.5% and added to its quantitative easing programme to stimulate the economy, while a term funding scheme has been introduced as a way for the central bank to pass on the rate cut to households and companies. The BoE has also indicated that there will be another interest rate cut this year, if medium term prospects remain unchanged.

Jamei said he expected a subsequent uptick in approvals, "albeit still at levels lower than earlier this year as affordability constraints and lack of properties on the market for sale continue to bear down on borrowers”.

With the economy currently showing resilience following June’s Brexit vote, economist Howard Archer at IHS Markit said he expected house prices to be "essentially flat" over the final months of 2016.

"The CML gross mortgage data dilute belief that house prices may dip over the latter months of 2016."

Archer estimated that a slight dip in house prices is likely in 2017, possibly by around 3%.

"We believe housing market activity will be increasingly pressurized in 2017 as mounting uncertainty affects the economy and also constrains consumer confidence and willingness to engage in major transactions," he said. "We suspect that business and consumer uncertainty will heighten in 2017 once the UK formally launches divorce proceedings from the EU by triggering Article 50 and the negotiations increasingly come to the forefront."