Mortgage approvals slump further says Bank of England

Monday, 2 March 2009 10:47 AM

Bank of England data show mortgage approvals fell further in January - despite initiatives to kick start lending.

A total of 98,000 mortgages were approved in the first month of 2009, compared to 253,000 mortgage approvals in January 2008.

Some 31,000 home purchase mortgages were approved, down 34 per cent on a year ago and remortgage approvals fell 71 per cent to 34,000.

Total mortgage lending stood at £9.1 billion - an annual fall of 64 per cent.

Jason Bolton, mortgage expert at financial advice website Rubii.co.uk, said: "In December we saw a mini spike and people were immediately talking about a recovery - I think these latest figures show that talk of a recovery was a little premature.

"Even though levels of interest among buyers have improved noticeably since the turn of the year, lending conditions are still extremely testing and are likely to remain so for the rest of 2009."

He explained interest rate cuts had yet to have a full effect and the only buyers taking advantage of house price falls are those with cash already behind them.

"The lack of affordable mortgage deals will continue to frustrate buyers hoping to benefit from a property market that has dropped significantly in the last 12 months," he said.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said the figures show the urgent need for more cash to be injected into the mortgage market.

"Despite three consecutive monthly increases in the RICS 'buyer enquiries' series, the actual level of new mortgage approvals continues to languish," he said.

"Announcements by both Northern Rock and RBS indicate that a little more funding will flow into the mortgage market over the coming months but as things stand, this will only boost the available finance by in the region of ten per cent compared with 2008."

Howard Archer, chief UK economist at IHS Global Insight, explained house prices were still set to fall.

"Although housing market activity may well now have bottomed out, it is still at an extremely low level which suggests that further significant falls in house prices are highly likely," he said.

"Furthermore, while latest survey evidence indicates that buyer enquiries are now picking up significantly as people are attracted by lower house prices and the Bank of England slashing interest rates, we are sceptical that this will lead to a marked rise in actual sales anytime soon."

Dr Archer claimed many people are likely to be looking at houses pretty casually and will probably be very cautious about committing to buying a house in the current economic environment.

The Bank of England data also show growth in personal loan and credit card lending is still down.

Net credit card lending increased by £0.3 billion and net other loans and advances rose by £0.1 billion.

The annual growth rate of consumer credit slowed to 4.6 per cent and the three-month annualised growth rate fell by 0.4 percentage points to 2.4 per cent.

Lee Bramzell, chief executive of PropertyIndex.com, said: "It is reassuring to hear that the number of mortgage approvals remained steady at 31,000 in January, suggesting that the crisis in mortgage lending is stabilising.

"With news last week that Northern Rock and RBS are set to boost their new mortgage lending over the coming months as part of their bail out agreements, we could be looking at the beginning of the end of the housing market slump.

"While some buyers will hold out for the bottom of price falls, there is still a huge pent up demand from buyers who have wanted and needed to buy over the past year but have been unable to secure finance. I would expect to see a stabilisation in prices following within the next six months."

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