Mortgage numbers fall as mutuals' cash dries up

Published on Monday 29 June 2009 21:44

MORTGAGE lending by building societies contracted for the fifth month in a row during May as the sector continued to struggle to raise funding.

Borrowers repaid 752 million more during the month than societies advanced through new mortgage lending, according to the Building Societies Association (BSA).

The latest fall, revealed in figures published yesterday, continues a trend which began in January. Mortgage lending by mutuals has shrunk by 3.7 billion since the beginning of the year.

And the level of savings held by building societies dropped by 106m during May, as consumers, hit by low interest rates, withdrew 494m, while funding through the wholesale money markets was negative.

A BSA spokeswoman said: "There are problems in the wholesale markets and challenges attracting savers.

"But there is also a lack of demand as people wait for the housing market to recover. In a declining market it is prudent to cut back on lending."

The problems in the sector, combined with a fall in the number of specialist lenders who are still writing new business, is intensifying the ongoing mortgage drought.

Figures from the Bank of England yesterday showed that net lending, which strips out redemptions and repayments, was just 324m in May – the lowest figure since records began in 1993.

The number of mortgages approved for house purchase was also disappointing at 43,414, the highest level for 13 months, but only marginally ahead of April's figure and below economists' expectations.

And there was a blow for consumers yesterday when Lloyds Banking Group announced the second mortgage rate rise in two weeks, increasing five-year fixed-rate loans offered through intermediaries under its Cheltenham & Gloucester brand by 0.2 per cent.

It was joined by Yorkshire Bank and Clydesdale Bank, both part of National Australia Bank, which are increasing the cost of their two and five-year fixed-rate deals by up to 0.5 per cent.

The moves helped to raise the average cost of a five-year fixed-rate mortgage to 6 per cent, a level last seen in December.

Experts said that the latest round of mortgage repricing was kicked off by a steep increase in swap rates, on which fixed-rate deals are based.