Gross mortgage lending fell by nearly 12% in September compared with August, to an estimated £30 billion according to new data from the Council of Mortgage Lenders. Although lending was up 2.5% on the £29.2 billion figure for September 2006, the annual increase is the lowest percentage increase in two years. The figures are not seasonally adjusted.

While lending typically falls between August and September, a 12% decline is larger than the norm of around 5%. This easing in the market is another sign of the expected consumer response to the five interest rate rises experienced since August 2006.

Stretched affordability

Commenting on the data, CML Director General Michael Coogan said: "We have been expecting a slowdown in monthly lending levels in line with interest rate rises. In the coming months, we expect to see monthly lending levels dip below their 2006 levels for the first time this year as rate effects are exacerbated by the recent liquidity problems in the mortgage market."

Simon Rubinsohn, RICS Chief Economist said:  "The gradual slowdown in housing market activity continues unabated. Mortgage lending remains higher than the same period last year, yet recent months have seen a marked slowdown in lending volumes in response to the previous interest rate hikes, stretched affordability and the impact of the Northern Rock episode. The RICS expects activity to slow further into the New Year. 2008 will see a subdued market and little or no change in house prices."