Net mortgage lending falls: BBA

Mortgage borrowers are taking advantage of low interest rates to pay down their mortgage and other debt, while building up the money they hold in current accounts.

Net mortgage lending fell to £2.4bn in March, compared to £2.7bn in February and £3.4bn in March 2009, according to BBA figures.

Gross mortgage lending picked up marginally to £8.7bn for the month, but remained lower than the six-month average of £9.2bn.

In total, 34,905 mortgages were approved during the month which is a 20% increase on March 2009. The average homeloan was 11.8% bigger than a year ago.

The BBA said the fall in net lending had been influenced by "stronger than usual" mortgage repayments "as banks actively encouraged borrowers to use surplus cash to reduce their borrowing where possible".

The BBA's statistics director, David Dooks, says: "Low interest rates continue to influence customer behaviour. Homeowners are reducing mortgage debt by making, or maintaining, higher repayments using the extra cash generated by lower mortgage rates.

"People are also holding more cash in their everyday accounts rather than building up savings accounts, and overall unsecured borrowing levels are standing still."

Brian Murphy, head of lending at independent mortgage broker Mortgage Advice Bureau adds: "A small rise in mortgage approvals last month is roughly in line with seasonal expectations. Despite the low levels of mortgage approvals, there is nothing to suggest that the market is out of kilter, and if anything this slow, steady growth that we are seeing, is exactly what is required for a sustained recovery.

"However, the picture in April and May is likely to be an entirely different one, with a levelling off in mortgage approval numbers predicted, at a time when housing market activity is normally at its busiest.

"The problem is, the recent rise in unemployment levels and the imminent General Election has inevitably cast doubt in the minds of people looking to buy. The likelihood is that many prospective buyers will hold off making a purchasing decision now until they know what the fallout is going to be after the votes are counted on 6 May."