Mortgage loans at new record of £32.7bn despite rate rise

Mortgage loans at new record of £32.7bn despite rate rise

Mortgage lending soared to a new record last month despite the rate rise on August 3, it emerged yesterday. Homebuyers and remortgagers seemed undeterred by the 0.25% rise in the Bank of England base rate, borrowing £32.7bn last month.

The total level of borrowing was 7% higher than the £30bn lent in July, and 21% up on the same month last year, said the Council of Mortgage Lenders. The previous record, set in June, was £32.4bn.

The increase was driven in part by the strength of the market in London, where property values, and hence mortgages, were substantially higher than in other parts of the country, said Michael Coogan, the CML's director general.

Homeowners bracing themselves for another rise in interest rates were given the hint of a slight reprieve yesterday. Minutes from the Bank of England's monetary policy committee (MPC) meeting this month showed that all eight members supported the decision to leave borrowing costs at 4.75%.

One member, David Blanchflower, had considered voting for a cut. The US economist, a relative newcomer to the committee, voiced concerns about the outlook for the American economy. He had stood out in the vote for August's surprise rate rise as the only policymaker opposing the move. Yesterday's minutes showed that vote had been a close call for Mr Blanchflower, and at the latest meeting he seemed to be at odds again with the other policymakers, who are widely expected to raise rates to.....continued below

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5% by Christmas.

Referring to Mr Blanchflower's stance, the minutes said: "Even if minded to seek a reversal of the rate rise in due course, the signal to wage and price setters in advance of the next pay round was sufficiently important that it would be unwise to vote for reducing rates this month."

Most economists still expect another rise as the Bank battles to hold back inflationary pressure from high energy prices, rising utility bills, dearer food and rising university tuition fees.

"The overall tone of the minutes was hawkish and we consider them supportive of our view that the committee will raise rates once again in November," said Amit Kara, economist at UBS.

For now though the MPC said there were not sufficient signs of price pressures to warrant a rise. The minutes noted financial markets' expectation that rates would rise in November and did little to counter that prediction.

Jonathan Loynes, at Capital Economics, highlighted a slowdown in the US and signs that energy effects on inflation were easing. "A November rate hike would probably be the last of the (mini) cycle. We expect rates to come back down in the second half of next year in response to weakening global activity, sluggish consumer spending and fading price pressures."

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