By Max Clarke

An unusual combination of factors led to a 26% fall in house purchase lending in January, according to new data from the Council of Mortgage Lenders. A fall between December and January is usually expected but a decrease of this magnitude is greater than seasonal factors alone would explain.

"The bad winter weather and uncertainty over interest rate rises” explains Council of Mortgage Lenders head Michael Coogan “will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months. The market remains stable at low levels of transactions."

A mixture of factors probably led to this drop. With the effects of last year’s government spending cuts beginning to bite, and rising inflation and tax measures putting pressure on household budgets, potential house-buyers are likely to have been discouraged.

Continued Mr. Coogan: "Pressures on household budgets have been increasing both in terms of take home pay, and indirect tax measures such as the VAT increase and recent inflationary pressures, so we were expecting a fall in transactions early in the year, and a flat mortgage market underpins our forecasts for 2011.

There were 28,500 loans advanced for house purchase, worth £4.2 billion, in January, a fall of 29% by number and 26% by value on December. This was also a 12% fall by number (13% by value) from January 2010 and, given that the rush to purchase at the end of 2009 due to the stamp duty concession led to an artificially low level of lending in early 2010, this represents a substantial year-on-year fall.

It is likely given the mix of factors that led to the fall in January, that the market will remain flat. However, one month's data is not conclusive of the likely spring trend, especially in a low volume market where changes can be exaggerated in month-by-month percentage comparisons.