UK Finance has warned that a further deterioration in the economy is likely to “dampen” first-time buyer and remortgage activity.
The new trade association, which has replaced the Council of Mortgage Lenders, said that gross mortgage lending is up 3% on last year at £22.1 billion.
On a monthly basis gross mortgage lending went up 9%.
Mohammad Jamei, UK Finance senior economist, said: “A period of belt-tightening now seems to be underway as inflation begins to erode consumer spending power, and consumer confidence weakens. Given that the economy and housing market are closely linked, this has contributed to the activity plateau since the start of the year.
“Looking ahead, housing market activity is likely to reflect economic conditions – a deterioration would likely dampen first-time buyer numbers and homeowners remortgaging – the factors that have supported lending recently.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “These numbers are quite disappointing compared with this time last year when of course the market was in the doldrums to some extent following the introduction of the stamp duty surcharge.
“Nevertheless, we are not noticing any signs of a bigger correction in the market but more balance between supply and demand while realistic buyers and sellers are getting on with their business at more realistic levels.
“Looking forward, we don’t expect a big change one way or another other than an acceptance that present conditions are likely to be the new norm.”
There was some good news for homeowners this week with an unexpected fall in inflation, which will ease pressure on the Bank of England and households feeling the financial pinch.
The Office for National Statistics said that inflation rose by 2.6% in June compared with 2.9% in May – the first fall since October 2016.
While the rate had been forecast to remain at 2.9% it is still well above the Bank of England’s target of 2%.
The fall in inflation will weaken the argument for a hike in interest rates that was supported by a minority of the policy makers on the Bank of England’s Monetary Policy Committee last month.
In a surprise move, the Bank’s Monetary Policy Committee voted by a majority of 5-3 to maintain the Bank Rate at 0.25% – the closest it has come to raising rates since 2007.
Jonathan Sealey, CEO of Hope Capital, said: “Inflation unexpectedly fell earlier this week, and this fall puts the interest rate hike later this year in doubt.
“A rise in rates against the backdrop of falling wages would negatively impact consumer spending which would be bad news for the economy. It will therefore be interesting to see how the Inflation Report next month addresses these figures and how they will factor into future prospects.”
