Mortgage lending keeps building but CML expects Brexit contraction

Levels of UK mortgage lending increased to the highest June level since 2008, the Council of Mortgage Lenders said on Thursday, though it expects uncertainty around the Brexit decision to hold back homebuyers from accessing banks' ample capacity to lend.

Calculations by the CML, whose members represent 95% of mortgage lending in the country, indicated gross mortgage increased 16% to £20.7m from May's £17.8bn, and 3% from the £20.1bn lent in June last year.

Following the £17.6bn of lending in April, gross mortgage lending for the second quarter reached an estimated £56.1bn, down 10% on the first quarter of this year but 8% higher than the second quarter of 2015.

“The result of the EU referendum is likely to affect the housing market, but there remains considerable uncertainty," said CML senior economist Mohammad Jamei.

"Although mortgage firms have ample lending capacity, activity levels are likely to bear the brunt of any market adjustment over the next six months or so, as buyers and sellers wait to get a clearer idea of where we might be headed.

He added that over the next six months, the CML saw activity as likely to soften modestly, with lending driven more by remortgaging and less by house purchases.

This is supported by other data, with the Royal Institution of Chartered Surveyors reporting June saw house buyer enquiries fell for a third month running and at the fastest rate since mid-2008.

Economist Howard Archer at IHS Global Insight said housing market activity and prices look to be at very serious risk of an extended, marked downturn following the Brexit vote.

"The fundamentals for house buyers look likely to soften over the coming months with unemployment rising and purchasing power narrowing," he said, adding that housing market activity and prices are also likely to be pressurized by more stretched house prices-to0earnings ratios and tighter checking of prospective mortgage borrowers by lenders/

If the Bank of England cuts interest rates from 0.50% to 0.25% in August, as many economists expect, this could help to limit the downside for house prices.