25/06/2002

Interest rate rise needed say mortgage lenders

The Council of Mortgage Lenders (CML) have said the continued rises in mortgage lending reinforced their view that a modest rise in interest rates sooner rather than later was desirable to avoid the possibility of sharper increases in the future.

It is the first time mortgage lenders have called for a rise in UK interest rates in their history.

Mortgage lending reached a new peak for the third month in a row in May when gross advances totalled £19.5 billion - an increase of 19% over April's revised total of £16.4 billion.

CML said the combination of higher interest rates this summer and affordability constraints would help ensure that there was a soft landing for the housing market and place it on a sounder footing for the long term.

The Director General of the CML, Michael Coogan, said: "Record figures for the third month in a row suggest that lending could now be on course to top £200 billion in 2002. The strong growth in loans for house purchase reflects the strength of demand in the housing market, which is driving prices upwards.

"With rates at historically low levels, a modest rise in interest rates this summer would help ensure that the housing market is sustainable in the future without causing payment difficulties for the overwhelming majority of borrowers.

"We are due to meet ministers later today to discuss ways of making home-ownership more secure for all borrowers. A stable housing market helps to deliver that. There are also steps that borrowers themselves can take, like reducing their risk of exposure to an unexpected loss of income by taking out insurance to cover their mortgage payments."

Although remortgaging remained buoyant, the housing market provided the main stimulus with loans for house purchase increasing to £12 billion (from £9.2 billion in April), the highest monthly figure since records began. (MB)

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