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September slowdown in mortgage lending

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by Gill Montia

Mortgage lending figures for September provide further evidence of a slowdown in the UK property market.

According to the Council of Mortgage Lenders(CML), the total value of mortgage loans fell by 12%, or £4 billion, last month.

September normally sees a decline in mortgage lending because it is the beginning of a quieter period for the property market, but the average decline is 5%.

Affordability issues have been heightened by the five base rate rises of the past year and many potential buyers cannot afford to enter the housing market.

In addition most banks and building societies have tightened lending criteria and there has been a large scale withdrawal of products, estimated at around 40%.

Confidence in the market is waning in the face of speculation that UK house prices will drop; a report issued this week the International Monetary Fund (IMF) has suggested that UK housing stock is dangerously overvalued, with up to 40% of the rise in prices seen in the last decade not justified by economic fundamentals.

The Land Registry provides the most reliable data on UK house prices and estimates the average cost of a home at £182,914, representing a rise of 231% (£127,664) in 10 years.

In terms of the IMF report, 40% of this increase amounts to just over £51,000.

According to Michael Coogan, director general of the CML, “We have been expecting a slowdown in monthly lending levels in line with interest rate rises. In the coming months, we expect to see monthly lending levels dip below their 2006 levels for the first time this year as rate effects are exacerbated by the recent liquidity problems in the mortgage market.”

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News posted: October 19, 2007

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