Rise in home loans boosts claims of end of recession for property market

Published 27th Aug 2009

The number of loans approved for house purchases rose to a 17-month high in July, prompting fresh claims that the property market is emerging from recession.

A total of 38,181 mortgages were awarded by banks in July, up from 35,564 in June and the highest since February last year, British Bankers' Association (BBA) data showed. The typical loan size increased by 1% on the month to £139,700, with the total value of mortgages taken out for home purchase reaching £5.2bn in July, up 79.1% compared with the same month last year.

The BBA's figures add to recent data suggesting the property market and house prices may have bottomed out and begun to move forward again. Halifax and Nationwide reported 1%-plus gains in house prices last month, while the property website Rightmove said last week that bargain seekers had pushed its online traffic to record levels. Today, the Countrywide estate agency group said confidence was returning at its property auctions, with one in five homes selling above guide price.

Allan Monks, of JP Morgan Chase Bank, said: "This is the highest reading on mortgage approvals since February 2008 and extends the recent steady uptrend."

But the figures also revealed that debt-laden households are choosing to repay loans rather than take out new credit. Existing mortgage holders are repaying their loans faster, taking advantage of historically low interest rates.

The BBA said the amount of new spending on credit cards was down 9% on a year ago, personal loan demand had fallen 39% and bank overdrafts had edged back by 3.2% compared with last year.

British households repaid £200m of debt in July while at the same time increasing their bank deposits by £2.5bn, the association said.

In part, the figures reflect a new thriftiness after years of splurging on debt, but they also highlight difficulties in obtaining loans. Despite the record low Bank of England base rate, interest rates on personal loans and credit cards have risen substantially throughout the credit crunch. The typical rate on a personal loan has risen from 10.57% to 12.55% over the past year and lenders are turning away as many as half of all applicants.

Economists say the continued shortage of available finance, plus rising unemployment, could snuff out any recovery in the property market.

Brigid O'Leary, a senior economist at the Royal Institution of Chartered Surveyors, said the mortgage approval figures, while "encouraging … do not disguise the fact that the housing market is still in a fragile state and that mortgage activity is still limited". O'Leary added: "Lenders have suggested that demand for fixed-rate products is exceeding their capacity to fund them but, for many borrowers, the limited number of, and high premium on, high-value loan-to-value products may also be preventing them from entering the market," she added."Ray Boulger, of the mortgage lender John Charcol, said large numbers of building societies had virtually halted lending, hit by capital constraints imposed by the Financial Services Authority.

"We will see transaction levels in the property market remaining low for some time to come," he said. "But supply and demand are still tight, so I expect prices to end the year up 5-6%."

"Bizarrely, the longer the recession goes on, the longer interest rates will remain low, therefore supporting the market. It's when interest rates rise that house prices may come under pressure."

Nicholas Leeming, the director of propertyfinder.com, added: "Buyers are champing at the bit to take advantage of attractive house prices, but the banks – awash with vast sums from the government and Bank of England – are suppressing new lending and encouraging borrowers to repay existing loans.

"Without a concerted effort from lenders to provide more assistance to homebuyers by providing finance, the recovery in the housing market is likely to be drawn out and painful."

Source: ' Guardian '

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