Mortgage lending was subdued last month and the effects of the credit crisis are likely to mean a “testing time” for the market, according to the lastest industry reports.

The Council of Mortgage Lenders (CML) said it believed that mortgage lending would be constrained as the financial turmoil puts lenders under pressure, although its latest figures showed that the market remained healthy last month despite the credit squeeze.

Gross mortgage lending grew to an estimated £32.4 billion in October, it said, up by nearly 6 per cent from the previous month, higher than a 3 per cent rise normally seen at this time of year. The group said that the figure was a reflection of applications and approvals initiated before the mortgage market became affected by wholesale funding problems. It forecast that advances would be lower over the rest of the year.

Michael Coogan, the CML’s director-general, said: “The next few months will be a testing time as ongoing pressures in financial markets feed through into the wider economy. Funding constraints will continue to restrict lending activity and make loans more expensive.

“The Bank of England’s recent quarterly Inflation Report reinforced the likelihood of a reduction in rates early next year, and that should provide some relief for borrowers sooner rather than later.”

The Building Societies’ Association (BSA) said that net receipts had climbed above £3 billion in October, beating the record of £2.8 billion set the previous month and almost four times as much as was deposited a year ago. Adrian Coles, director-general of the BSA, said: “It seems that the majority of these deposits are funds withdrawn from the Northern Rock bank, with the attractive savings products offered by building societies continuing to appeal to customers looking for the best home for their money.”

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