Mortgage lending falls but consumers keep hitting the shops

Mortgage lending falls but consumers keep hitting the shops

The mortgage frenzy calmed down a little last month but there was no sign of any slowdown in high street spending, it was revealed yesterday.

Mortgage lending dropped to its lowest level for almost a year, according to the Council of Mortgage Lenders.

At £20.1bn, gross lending was 15% higher than a year earlier, but 6.5% lower than in January, and well below the peak of £27.3bn last October.

The fall in lending was not unexpected as it followed previous seasonal patterns, and it is too early to say whether it reflects a reduction in consumers' appetite for borrowing following the two interest rate in creases in November and February, said the CML.

The bulk of the fall was blamed on a £1bn drop in remortgaging, which fell to its lowest level for a year.

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First-time buyer activity strengthened somewhat, despite growing concern about their plight, though the CML cautioned against too much being read into one month's figures. First-time buyers made up 30% of housebuyers taking out a mortgage in February, up from 27% in each of the previous three months.

Fixed-rate mortgages are continuing to fall in popularity, despite the rate rises and predictions of more to come. One in five new loans was on a fixed rate, with loans linked to a variable rate such as discounted products accounting for 77% of new lending.

"Lending remains very strong, but we still expect it to moderate as the year goes on," said CML director general Michael Coogan.

Consumers continued to hit the shops last month, helping retail sales to increase annually by almost 7%.

Sales were strong across all retail sectors but buoyant department stores and internet sales grew more strongly than in recent months, said the Office of National Statistics.

"This revising upwards of the retail growth is pushing up the likelihood of an interest rate rise in April rather than May," said George Buckley, an economist at Deutsche Bank.

Sales for February were flat month-on-month but the sales growth for January was revised up to 1.2%, doubling the earlier estimate. The three-month retail sales volumes have increased by almost 5% compared to a year ago.

The ONS monitors sales growth on a rolling three-month basis to smooth out monthly blips in the data.

For the three months ending in February, sales growth rose to just under 2% compared to the previous three months, the highest rate for 18 months.

Sales for the whole of 2003 are now estimated to have increased by just under 2.5% compared to the previous year. This represents the lowest growth since 1943.

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