Housebuyers put the brakes on

THERE are signs the housing market is finally beginning to cool down, with mortgage lending falling by more than £1bn from April to May.

Figures released by the Council of Mortgage Lenders (CML) today reveal the number of home loans taken out dropped to 103,000 in May, down from 118,000 in April. It follows the fourth base rate increase in six months, which has seen the base rate rise to 4.5%.

Overall new home loans accounted for £4.9bn in May; this is down from the average of £5.4bn in recent months, according to the British Bankers Association. The BBA, however, described suggestions of a slowdown as 'premature'.

David Dooks, the association's director of statistics added: 'After several months of buoyant mortgage lending, it would be premature to conclude, just on the basis of weaker lending in May, that the market is moderating. Consumer credit overall was much in line with the current average, with credit card lending being slightly stronger than average and other loans slightly weaker.'

Michael Coogan, director-general of the CML disagreed, however: 'Our survey and other recent data suggest that the housing market may well have begun to slow down. Reduced affordability, exacerbated by the cumulative effect of interest rates is acting as a natural brake.'

Experts are dismissing fears of an imminent collapse in the property market, however.

'Recent speculation about the likelihood of a housing market crash has been alarmist and distorting,' says Coogan. 'The under supply of property, and the continued aspirations of most people to own their own house, makes it likely that house prices will slow down rather than stop.'

Ray Boulger of independent financial advisers Charcol agrees. 'Interest rates are going up which means the rate of house price inflation is likely to fall. The market is slowing down and these figures show the impact of earlier increases, However, this is very different from an actual drop in house prices, which has not happened.'

Although the average cost of a fixed rate mortgage rose from 4.94% in May, to an average of 5.11% in May, the percentage of people opting for the security of a fixed rate deal stayed constant at 30% of all home loans taken out. Variable rates accounted for 68% of all loans while 2% of buyers chose a capped rate deal.

Despite a fall in the number of first-time buyers from 33,000 in April to just under 32,000 in May, as a percentage of all home loans to first-time buyers rose from 28% to 31% over the same period.

On average first-time buyers borrowed 88% of the value of their property, with mortgages totalling an average of 2.9 times their income. This compares to people moving and remortgaging, who borrowed 70% of the value of their home, also around 2.9 times their income.

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