The latest mortgage figures from the Council of Mortgage Lenders (CML), revealed that gross mortgage lending was virtually static at £34billion in August, compared with £34.1billion in July. And it was only £1billion higher than August last year. This is unsurprising given the growing evidence that the housing market is finally slowing as a result of the five interest rate rises that were seen between August 2006 and July this year. However, what is surprising is the fact that there was a marked shift in the type of borrowing over the last 12 months.

Lending for house purchases and mortgages has fallen over the past 12 months both in the numbers of loans advanced, and the value. Buy-to-let lending on the other hand is still rising.

The CML’s figures revealed that the value of ‘other’ lending, which is predominantly buy-to-let, increased from £5.7billion in August 2006, to £7.8 billion in August this year – a rise of 37%. Over the same period, lending for house purchases fell 2.5% from £16.1billion to £15.7billion. The number of people taking out mortgages for purchases fell from 111,000 to 99,000. This trend is likely to continue as the housing market slowdown takes hold.

House prices fell by 0.6% in September according to Halifax, although they are still 10.7% higher than a year ago. The rate of growth is expected to slow to around 7% by the end of the year and many economists think prices will rise by around 3% or 4% next year. Capital Economics, a consultancy believes prices could drop next year.

The slowdown in the residential markets is one of the reasons behind the continued strength in buy-to-let. Thousands of people cannot afford to buy and many are reluctant to take the plunge now, in case prices fall. Demand for rental property is therefore strong which helps explain why buy-to-let lending is still on the up.

However, the CML’s figures take are for loans completed in August - before the credit crunch and crisis at Northern Rock took effect. In recent weeks, a number of buy-to-let lenders have tightened their criteria. Rates on most deals have gone up while lenders such as Gmac, have reduced the amount they will lend. Gmac will now lend a maximum of 75% of the property’s value, down from 90%. Others have increased the amount of rental cover they require – Advantage for example, which used to only require the rental income to cover the mortgage, will now only lend if the rent is 110% of the monthly mortgage payments. These changes will make it harder for borrowers to advance a mortgage, so over the coming months buy-to-let lending is likely to slow.