Moves by the Bank of England's monetary policy committee
(MPC) to increase the base rate of interest over the course
of the summer led to a fall in lending for property
purchase in September, new research indicates.
According to a study conducted by the Council of Mortgage
Lenders (CML), the impact of the higher cost of repayments
on personal loans and other types of borrowing resulted in
some 12.7 billion pounds for the purposes of home buying to
be issued in September. Consequently this figure was down
on the 16.2 billion pounds noted during the previous month
and the 13.9 billion pounds from September 2006.
The study also revealed that homeowners are coming under
increasing financial pressure as the typical mortgage rate
rose from 5.91 to 6.02 per cent from August to September.
In turn this caused the CML to assert that the
affordability of property has "worsened" for both
first-time buyers and those already on the housing ladder,
which in turn could impact upon their capacity in making
repayments on secured loans and utility bills. Over the
course of September, mortgage interest payments accounted
for 20.4 and 17.5 per cent of income for people making
their initial steps on to the housing ladder and existing
homeowners respectively.
In addition, the company pointed out that borrowing from
both groups fell during September, as some 28,400 loans
were issued to first-time buyers during the month, down
from the 34,800 recorded in August. Meanwhile, those
already on the property sector took out some 52,400 loans,
in comparison to the previous month's total of 68,000.
Such financial difficulties were attributed to the eventual
impact of the MPC's decision to increase interest rates in
both May and July. However, the effects of the recent
credit crunch and stricter lending criteria by loan lenders
were not due to impact home lending figures until October.
Overall, home loans for all purposes accounted for 30.6
billion pounds this September, up by 800,000 pounds from
the 29.2 billion pounds recorded from the corresponding
month last year. However, in August 2007 a grand total of
34 billion pounds was taken out. Meanwhile, other forms of
lending, including buy-to-let, remained consistent over the
course of August to September standing at 6.8 billion
pounds - up by 5.3 billion pounds recorded during September
2006.
Commenting on the statistics, Michael Coogan, director
general for the CML, said: "The data shows that higher
interest rates are now beginning to slow the housing
market, in line with our recently published forecasts.
Looking forward, we expect remortgaging to continue to hold
up as borrowers coming off fixed-rate deals look to
refinance. However, market conditions may mean that
mortgage customers see an increase in costs and the Bank of
England's decision not to reduce rates earlier this month
will have disappointed many borrowers. Looking forward,
affordability is likely to continue to constrain buying
activity, which we expect to remain subdued."
However, Mr Coogan asserted that the base rate has now
reached its "peak", while any moves by the MPC to lower
interest rates "will help ease some of the pressure on
household finances". One way consumers could reduce levels
of financial strain is by taking out a debt consolidation
loan, in which money owed to numerous creditors and
companies can be reduced into a single monthly amount.
Earlier this month, James Caldwell, director of
Fairinvestment, reported that those developing money
management problems should be proactive in terms of getting
back on their fiscal feet and reducing their expenditure.
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