Mortgage lending rose by 5% in July, compared to June, but remains down 3% year on year

Mortgage lending rose by 5% in July compared to the previous month, to £13.6bn, but was down 3% from £14bn in July 2009, supporting claims that the housing market is slowing down.

The gross lending figures, published by the Council of Mortgage Lenders(CML), indicate that lending is on track to meet the CML's lending forecast of £140bn for the year.

CML economist Paul Samter commented: "It is difficult to see anything other than a slow market for the rest of this year as underlying activity remains subdued. The rest of 2010 is likely to see rather lower lending and transaction numbers compared to the same period last year. Late 2009 saw a pick up as some homebuyers looked to move before the end of the first stamp duty holiday.

"But for most homeowners, the situation is not that bleak. The vast majority of households continue to pay their mortgages in full every month, and many have benefited from the record low interest rates. This looks set to continue for some time yet. While there are a range of risks to the outlook, low rates will further help most stay on top of their finances."

Brian Murphy, head of lending at independent mortgage broker Mortgage Advice Bureau, said he did not expect any big changes in lending during the rest of the year: "There is no stamp duty incentive in the second half of 2010 so borrowing levels will invariably be down on the same period last year, especially with October's spending review looming and people choosing to sit on their hands.

"Although the [Bank of England's] monetary policy committee (MPC) voted 8-1 in favour of keeping rates on hold again this month, inflation remains above target and with unemployment likely to rise in the autumn in the wake of public sector cuts, many borrowers are avoiding base rate complacency.

"Perhaps the standout finding in July is that borrower appetite for variable rate mortgages waned and fixed rates were the overwhelming choice. Nationally, we have seen fixed rate mortgages among house purchase customers increase from around 45% in January this year to more than 60% in July. Increasingly, borrowers are aware of the danger of the base rate moving against them and are opting for the safe haven of fixed rate loans."

However he added that rising average loan-to-value ratios in July were confirmation of growing competition among lenders and a renewed appetite to lend.

The caution exhibited by mortgage borrowers is contradicted by UK retail sales figures released by the Office for National Statistics today, which are up 1.1% on the previous month, and 1.3% higher than July 2009.

Jeremy Cook , chief economist of currency exchange broker World First said: "This is very surprising and flies in the face of recent consumer confidence measures. I always suspected that the summer months would deliver a strong showing for the UK economy. However, this is likely to be the best we will see for a while. With the spending review just around the corner, I expect consumers will tighten their belts for fear of how the cuts will affect the average family.

Jill Insley  Guardian.co.uk