You could be forgiven for being confused about mortgage market news lately.

Here are two headlines, released hours apart: "UK Mortgage Lending Revival Continues", and "Mortgage Lending Continues To Fall".

Talk about an apparent contradiction. But both would claim to be giving the true picture. Here's why...

What's Falling

Remortgaging.  Previously a big chunk of mortgage lending activity was spoken for by people switching, moving or extending their mortgages. This accounted for as much as 40 per cent of mortgage enquiries, although not 40% of actual borrowing when you factor in repayment of existing loans. Nevertheless, with people drawing on increases in equity to repay their consumer loans, remortgaging has been big business during the mortgage boom.

And why's it dropping now?  In short, low base rates and falling Loan To Value limits mean that people either can't remortgage, or don't want to. For many who would, it's a case of 'wait and see'.

The size of the drop is enormous – around 57 per cent down from the market peak.  However, luckily for all those mortgage middlemen, a different part of the market is rising rapidly... 

What's Rising 

First time buyers. They're like a tide: having been held back for nearly two years by the credit crunch, buyers seeking their first mortgage are being encouraged by stable low mortgage rates, reports — accurate or otherwise — of a bottoming-out in house price falls, whispers of economic recovery and the returning availability of lower deposit (higher Loan-To-Value) mortgages.

Ditto home movers.  A loosening-up of tight credit conditions, particularly a renewed willingness to lend by the bigger banks, has supported both lenders and buyers who have lost their terror of dropping house prices.

The rebound among first time buyers and movers isn't accounting for enough lending to negate the effect on the overall figures of the drop in remortgaging. But in context, purchase lending is resurgent enough to warrant the 'revival' headlines.

Other factors behind the headlines

There's a clutch of other reasons why some news sources report 'fall!' as others shout 'rise!'. 

Some report monthly figures and compare them to the previous month.  Others plot the year-on-year trend.

Some refer back to the market peaks of 2006, others draw a different benchmark.  

Some report numbers of applicants; some report approvals; others report the amount of money being lent out.

There's only one thing we can generalise: it's a time of mixed signals!

Viewed in gross lending terms, we have two lines (remortgage and purchase) that are moving in opposite directions.  They crossed over in May 2009 this year, and continue to diverge. 

In short, if you view 'the mortgage market' to mean strictly gross lending, the headlines that say 'falling' are accurate in several ways.  But if you intend to read mortgage figures as a reflection of housing market activity, descriptions of a 'revival' are more or less justified.

Borrowers with a 10% deposit have seen just a 0.12% drop in the average mortgage rate over the last year, despite the cost of funding to lenders falling 4.35%.

By comparison, those with a 40% deposit have seen a 1.86% reduction in the average mortgage rate.

Of course there'll always be a gap between juicy low-risk mortgage lending and higher-risk, lower deposit deals—but it doesn't seem right that the gap is so large. It's not just profiteering—it's genuine anxiety on the part of lenders, who haven't wanted to bet on the extent of dropping house prices (they know how much of a bubble the housing market has resembled, wouldn't you say?)

In a few months though, we'll see competition come back in on higher loan-to-value mortgages.  Lenders who have access to funds will be needing to tempt this sector of buyers back into the action—there's only a limited supply of people trading down with 40% or more equity.