Borrowers repay mortgages faster than banks lend new ones The number of new mortgages agreed is growing strongly, banks say - but the statistics also reveal nervous home owners desperately paying down their existing loans. As a result, the total amount of credit in the housing system has now contracted for the longest period in over a decade. The impact on house prices is likely to be negative, economists warn. Lending data for May from the British Bankers" Association highlighted an increase in the numbers of mortgages approved and in the sums lent, which were substantially higher than April's figures and than a year ago. The trade body said the number of mortgages approved in May was up ten per cent over a year. Loans for house purchase were at their highest in three years, the BBA said. But the BBA's top-line statistics exclude billions of pounds of repayments by existing borrowers, which exceed the value of lending and so push the total 'net' lending into the red. May was the fifth consecutive month to record a negative net lending figure, marking the longest period of total UK mortgage contraction since 1997, when comparable data began to be collected. At the height of the housing market boom in 2007, monthly net lending regularly exceeded £6bn. By contrast a net £500m was repaid in last month - otherwise expressed as "negative net lending." Since January this year, total mortgage lending has contracted by over £3bn. Analysts explained the apparent contradiction by saying mortgage approvals are growing from extreme lows. In addition, only a few lenders - such as building societies Nationwide and Coventry - are genuinely growing total lending. Others, like Lloyds Banking Group, which owns the Halifax brand, are shrinking their loan books despite being able to demonstrate a current increase in approvals. Hidden within the total data are also a large number of remortgages, whereby existing home owners - particularly those with equity in their property - are taking advantage of record low rates to swap provider. These borrowers are believed to be the biggest beneficiaries of the Government's flagship Funding For Lending scheme, supposed to boost the housing market by giving lenders access to cheap finance. "A lot of existing mortgage debt is simply being circulated from one lender to another," said mortgage analyst David Hollingworth of broker London & Country in Bath. Lenders are keen to do business with attractive, lower risk borrowers and that is where they will compete, rather than necessarily lending to new borrowers or increasing lending to existing ones. Certain lenders, such as the UK division of the Bank of Ireland, are going further, and actively encouraging existing borrowers to repay their loans. Incentives include waiving early repayment penalties or offers of free mortgage broker services. Matthew Pointon, property economist at Capital Economics, said the BBA data showed "mortgage approvals clawing their way back after five years of subdued activity" but warned that an "aggregate withdrawal of credit" would "constrain house price gains."