The number of new mortgages slumped by almost a third in January as public sector cuts, the VAT increase and the bad weather cast a long shadow over the housing market.
January is traditionally slow for mortgage lending but the 28,500 home loans granted in the first month of 2011 was also 12 per cent lower than in the same month a year earlier. The number of home loans fell 29 per cent in January compared with December, while the value of the loans, at £4.2 billion, was 26 per cent lower sequentially and 13 per cent lower than in January 2010.
The data, compiled by the Council of Mortgage Lenders, points to a significant decline year-on-year as the figures in January 2010 were artificially low after a rush of house buying at the end of 2009 because of the stamp duty concession.
Michael Coogan, CML director general, said: “Pressures on household budgets have been increasing both in terms of take-home pay and indirect tax measures such as the VAT increase and recent inflationary pressures. The bad winter weather and uncertainty over interest rate rises will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months.”
The sluggish market was also apparent in remortgaging activity, which fell 6 per cent from December, while the 10,500 mortgages for first-time buyers was 28 per cent lower than the previous month. People moving home also fell 29 per cent to 18,000.
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Brian Murphy, head of lending at the Mortgage Advice Bureau, said that lending in February had proved far more buoyant, with a lot of activity in the remortgaging market. However, he said he remained cautious about the outlook for lending over the year.
“With the economy still in intensive care, a rising inflationary environment causing concerns for the policy setters and the real impact of the coalition spending review still to take effect, both activity in the housing market and levels of mortgage borrowing are likely to remain constrained throughout 2011,” he said.