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Mortgage lending breaks new record

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25/07/2006

Mortgage lending reached a record high of £32.2bn in June, an increase of 30% on June 2005. Paula John reports.

According to figures from the Council of Mortgage Lenders (CML), total lending for June 2006 beat the previous record high of £29.1bn set in May by £3.1bn.
 
The industry body said lending levels were attributable to a combination of elements: the seasonal rise in house buying as the summer began, strong house price inflation, particularly in London, and high levels of remortgaging.
 
“Record levels of lending have been achieved in nine of the past 12 months,” said CML director general Michael Coogan. “Demand for houses and remortgages remains strong, so we expect to see continued robust lending during the summer months.”
 
Figures from the Building Societies Association (BSA), backed up this picture of a buoyant housing market.
 
It reported that building societies had approved a record £6bn worth of homeloans in June this year, compared with £4.3bn in June 2005.
 
However, both institutions sounded a note of caution, warning that the likelihood of a rise in interest rates in the second half of the year could well serve to dampen the housing market to a degree.
  
The CML’s Coogan said that the “risk of an interest rate rise seems more real than earlier in the year”.
 
A third report from the British Bankers’ Association (BBA), said banks’ mortgage lending in the first six months of the year was 18% higher than in 2005. But total mortgage business written inn June showed an annual increase of £5.6bn, down from a £5.8bn increase in May.
 
The likelihood of an interest rate rise increased with evidence that the recovery on the high street also pressed ahead during June, with retail up 3.7% over June 2005, much higher than the 2.9% forecast.
 
Some experts believe the Bank of England could raise interest rates by August. But Bank governor, Mervyn King, said policymakers would wait for any World Cup effect on retail sales to pass before deciding on interest rates.

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