Mortgage approvals down further as UK pays its credit card bill

Friday, 30 January 2009 11:53 AM

Bank of England data out today show mortgage approvals fell again in December.

A total of 99,000 mortgage deals were approved - down from 100,000 in November and the six-month average of 136,000.

Approvals worth £8.7 billion were recorded - down from the depressed six-month average of £14.1 billion.

Activity was particularly low in the remortgage market - where 36,000 deals were approved - down from 71,000 in September, as low rates on standard variable rate mortgages give borrowers little reason to switch at the end of fixed deals.

Mortgage approvals for home purchases were up in December to 31,000 - but still lower than in September and October.

"December's rise in mortgage approvals might be a sign that the rise in new buyer interest seen over the past few months is finally boosting housing market activity. But we wouldn't get too excited," said Vicky Redwood, UK economist at Capital Economics.

"For a start, the rise from 27,000 to 31,000 simply reversed November's drop - approvals are still 76 per cent down on their peak."

She added: "Meanwhile, we find it hard to see approvals picking up significantly further when credit is still so hard to get.

"And lastly, if the rise in approvals is driven by 'bargain-hunters', stronger housing activity might not prevent further falls in house prices."

"Overall, then, no convincing signs of a housing recovery yet."

Howard Archer, chief UK economist at Global Insight, said: "The Bank of England mortgage data do not fundamentally undermine the view that the housing market faces a very difficult 2009."

Andrew Montlake, at mortgage broker Cobalt Capital, said: "Although any improvement in the lending figures has to be welcomed, I'm not going to crack open the fizz quite yet.

"The fact remains that the mortgage market has gone from one extreme to the other.

"We've gone from over-exuberance to over-reaction and, in many cases, lenders have still got the shutters firmly down."

The Bank of England data also showed the UK is now paying off its credit card debts - with £100 million more paid off on credit card debts than spent - despite the Christmas rush.

Consumer borrowing rose "a miserly" £297 million in December," Dr Archer said - down from £727 million in November and below the monthly average £753 million.

"Going forward, consumer borrowing will be limited by ongoing very tight lending conditions while many people are likely to be increasingly keen to rein in their borrowing," he said.

"Rising debt levels, historically low household savings rates, plunging house prices and sharply weakened equity markets mean that there is a pressing need for many consumers to improve their finances.

"Furthermore, we suspect that very serious concerns over jobs and the economic outlook will cause people to try to save more, if they can."

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