According to the British Bankers’ Association (BBA), underlying net mortgage lending growth eased in June suggesting higher borrowing costs may be starting to cool demand in the housing market.

BBA said mortgage lending rose by £5.1bn last month, down from £5.8bn in May and below the recent average of £5.3bn.

David Dooks, BBA director of statistics, said: “We’ve seen the trend gradually slowing down since the turn of the year.”

Data from the Building Societies Association (BSA) supported that view, showing net advances of £0.9bn in June, down from £1.15bn in May. The BSA said approvals amounted to £3.97bn last month, down from £4.24bn in May.

Brian Morris, BSA head of savings policy, said: “It seems the successive interest rate rises is now being felt and is affecting affordability.”

The Bank of England has raised interest rates five times since August last year as it attempts to curb above-target inflation. Financial markets expect it to hike again this year, taking borrowing costs to 6%.
“With many commentators expecting another rate rise soon, lending may well cool further over the remainder of the year and into 2008”, Morris said.