Strong demand from new home buyers has pushed up mortgage lending, say figures

Strong demand from people buying a new home has helped mortgage lending edge up by 2% during September, figures have shown.

A total of £12.5 billion was advanced during the month, the second highest figure this year but still 27% lower than in September 2008, according to the Council of Mortgage Lenders.

The group said the improvement during September was driven by a pick-up in people borrowing money to buy a new home.

But it said the rise in house purchase activity was offset by the ongoing decline in the number of people remortgaging, as low interest rates mean many homeowners are better off staying on their lender's standard variable rate when their existing deal comes to an end.

CML economist Paul Samter said: "House-buying activity is running at considerably higher levels than around the turn of the year.

"However, it remains weak on any historic comparison and is unlikely to rise much further given the constraints the lending community faces and a still difficult economic backdrop."

The housing market has stabilised in recent months, with Nationwide recently reporting that prices had returned to the same level they were at a year ago during September, as a shortage of homes for sale forced up values.

A total of £38.9 billion was advanced during the third quarter of the year, 18% more than during the previous three months, but still 36% down on the same period of 2008.

But despite the fact that lending levels are still down year on year, the CML said there were some positive signs.

Mr Samter said: "Some of the UK's highly rated institutions have been able to issue structured finance products backed by mortgages in recent weeks. This is only an early sign of wholesale investors tentatively coming back into the new issuance market, but is welcome nonetheless."