Buyers tempted back as lending rises.

Byline: Karen Wilson

MORTGAGE lending to people buying homes rose 16% in April, adding to evidence that the housing market is beginning to stabilise.

A total of 35,600 loans were advanced to people for house purchase during the month, the most since last October, according to the Council of Mortgage Lenders.

The upturn builds on a recent run of positive data on housing, as buyers are tempted back by record low interest rates and recent price falls.

However, the numbers are still 28% lower than 12 months ago.

Bob Pannell, of the Council of Mortgage Lenders, said: "There are tentative signs of house purchase lending stabilising, but we need to see considerably higher transaction levels to underpin house prices." Despite the increase in lending, the best fixed deals are starting to be withdrawn, according to one North East independent financial adviser.

Craig Armstrong, of Gordon Brown Associates, said: "Over the past 10 days or so, lenders have started putting fixed rates up. There is a feeling within certain banks and building societies that the demand for fixed rates will outstrip the availability." Mr Armstrong said lenders which have announced increases to fixed rates recently include Nationwide and Royal Bank of Scotland. Northern Rock has also withdrawn its products and is expected to announce new higher rates soon. "There seems to be a bigger demand for fixed rates," he said. "People are thinking that interest rates have hit the bottom and they're wanting to secure their future for a while." Mr Armstrong said most borrowers were going for fixes rather than trackers or discounts. "You'd be surprised how many people have gone on to a low SVR with their lender but still want to fix as they're worried there will be an increase in fixed rates," he explains. "They think if they leave it any longer, the rates will be higher than they are now." The CML figures also show the number of first-time buyers taking out mortgages has increased for the third month in a row to 13,500. This is the highest since last October, when the credit crunch intensified after the collapse of US investment bank Lehman Brothers.

First-time buyers continued to put down an average deposit of 25%, while they borrowed 2.96 times their income, down slightly from 2.99 times last March.

However, Mr Armstrong does not believe the situation for first time buyers has improved dramatically.

"They're still limited in the number of 90% products," he said, adding that the high interest rates for those with only 10% deposit were putting them off. He explained that 90% deals were often above 6.5% while 80 to 85% deals were usually under 5.5%.

The figures come just days after the Department for Communities and Local Government said house prices had risen 1.1% in April, while the Royal Institution of Chartered Surveyors said inquiries from new buyers had increased for the seventh month in a row in May to reach their highest level since August 1999. Both Nationwide and Halifax also recently report price rises during May of 1.2% and 2.6% respectively.

But despite the increasingly positive signs, economists are continuing to warn that house prices are likely to fall further because of the economic downturn and continuing problems in the mortgage market.

The number of people remortgaging continued to decline during April, dropping by 22% compared with the previous month to 31,000.

About 69% of all borrowers took out a fixed rate deal during April, the highest level since June 2008.

First-time buyers now typically spend 15% of their pay on mortgage interest, the lowest proportion since May 2004, while homemovers spend 11.3% of their income on it, a level last seen in November 2003..