THERE was an unexpected increase in mortgage lending in January, figures published yesterday revealed.
But the credit crunch might still take its toll, with lenders warning that a downturn over the next few months was likely.
Figures from the Council of Mortgage Lenders (CML) showed that gross lending rose to an estimated £26.5 billion last month,
up 11 per cent from £23.9bn in December 2007.
Despite the current tough economic environment, the figure was only down by a modest 0.5 per cent on the £26.6bn reached in January last year.
Yesterday, the CML said that the figures showed a "good performance" given that January figures are usually lower than December's. But it admitted that volumes are expected to decline in the coming months as the fall in mortgage approvals towards the end of last year start to feed through.
CML director-general Michael Coogan said: "There is considerable uncertainty in the housing market at the moment and we expect lending volumes to be lower in the coming months."
His warning came after Kate Barker, a member of the Bank of England's monetary policy committee, singled out a fall in house prices and a drop in mortgage lending as the biggest short-term economic threats.
In a speech on Tuesday evening, she cautioned that the Bank would not be able to stop this in the immediate future.
An analysis of the figures shows that a lot of the lending last month was likely to be down to people remortgaging, rather than buying a house.
Howard Archer, chief UK and European economist at Global Insight, said: "While the CML data indicates that mortgage activity was relatively resilient in January, it should be borne in mind that this includes remortgaging activity and is also influenced by the size of the mortgages.
"It is really mortgage approvals that are more important as a leading indicator of where the housing market is headed, and latest available data show that these were very weak in December."
Global Insight expects house prices to fall by 5 per cent in both 2008 and 2009 and warned there was a very real danger that a sharp housing market correction could occur.
A reduced supply of mortgages with a high "loan to value" (LTV) will also cut the number of first-time buyers entering the market this year. Four of the six lenders that were offering 125 per cent LTVs have announced that they are pulling these deals.
These are Alliance & Leicester, Coventry Building Society, Godiva Mortgages and Abbey.
Only two lenders still offer these products: Northern Rock, which has priced itself out of the market, and Birmingham Midshires Solutions, which only sells through mortgage advisers, rather than direct to the public.
