Another fall in mortgage lending

Mortgage lending by building societies has contracted for fifth month running

Mortgage lending by building societies contracted for the fifth month in a row during May as the sector continues to struggle to raise funding, figures show.

Borrowers repaid £752 million more during the month than societies advanced through new mortgage lending, according to the Building Societies Association.

The latest fall continues a trend which began in January, and has seen mortgage lending by mutuals shrink by £3.7 billion since the beginning of the year.

The sector relies on using customers' savings to fund its mortgage lending, but societies are struggling to attract money in the current low interest rate environment.

The level of savings held by building societies dropped by £106 million during May, as consumers withdrew £494 million, while funding through the wholesale money markets was negative.

A BSA spokeswoman said: "There are problems in the wholesale markets and challenges attracting savers.

"But there is also a lack of demand as people wait for the housing market to recover. In a declining market it is prudent to cut back on lending."

The problems in the sector, combined with a fall in the number of specialist lenders who are still writing new business, is intensifying the ongoing mortgage drought.

Figures from the Bank of England have shown that net lending, which strips out redemptions and repayments, was just £324 million in May - the lowest figure since records began in 1993.

The number of mortgages approved for house purchase was also disappointing at 43,414, the highest level for 13 months, but only marginally ahead of April's figure and below economists' expectations.