Mortgage Approvals Increase

Mortgage approvals unexpectedly increased in January as house prices continued to fall. The Bank of England has released new data showing there were 74,000 mortgage approvals in January, which was up 2,000 from December. That month’s figure of 72,000 was the lowest since current records began in 1999. The surprise pick-up in the forward-looking indicator brings to an end a run of seven months of declines. nnVicky Redwood, economist at Capital Economics, said, “January’s household borrowing figures suggest that housing market activity has stabilised, at least temporarily.”nnMortgage lending posted its weakest monthly rise since July 2005, and annually it rose 9.7%, its lowest rise since October 2001. George Burley, economist for Deutsche Bank, said “Demand for, and supply of, credit in the UK mortgage market remains very weak and is set to ease further going forward.”nnRecently a member of the Bank of England’s Monetary Policy Committee, Kate Barker, warned that a drop in lending might contribute to a downward spiral of house prices, which in turn could become a big short-term threat to the UK economy. The Bank is expected not to announce further interest rate cuts until the middle of the year. They cut borrowing costs earlier this month, but rates may have to come down sooner if the economy deteriorates sharply.nnTotal mortgage approvals, which include remortgages, were 10% higher in January than the previous month. Although most of the rise is due to increasing remortgage volumes, house purchase volumes also rose slightly in the month despite being on a declining trend throughout the whole of 2007.nnOverall the volume of sales has dropped steeply, down by 22% in England and Wales. nnThe demand for mortgages had dropped under the impact of previous interest rate rises, and lenders have been becoming more fussy about who they lend to because of the recent crisis in the banking industry.nnFigures from Nationwide Building Society’s latest house price index showed a 0.5% decrease in house price inflation for February. This took the annual rate down to 2.7%, which is the weakest since November 2005.nnThis has brought the average UK house price to £179,358. Despite the rate of growth slowing, the average house price remains £4,653 more expensive than this time last year. The general rise in average prices means it will soon be impossible to find anywhere to buy in the lower price bands that were once commonplace. In November 2007, the last month for which numbers are available, there were just 748 sales for properties valued at less than £50,000 in England or Wales.nnGary Styles, strategy, risk and economics director at housing research organisation Hometrack spoke favourably towards the results.nn“These figures are a welcome change from the recent pattern of declining mortgage volumes in both the remortgage and house purchase market. The combination of lower interest rates and expectations of further easing are providing some support to the market.”nn“These numbers are still in line with the mortgage forecasts we published at the start of November when we stated that we expect total net lending to fall by around 18% in 2008 to £85bn.”n