Mortgage approvals edge upwards

Published 24th Nov 2009

Mortgage approvals only increased by 165 in October, but the figure has almost doubled over the past year, the BBA says


The number of mortgages approved by banks for house purchase rose by just 165 in October, but is almost double the figure for the same month last year, the British Bankers' Association (BBA) said today.

The number has been rising steadily since activity in the housing market reached a trough early this year, and at 42,238 is now 97.7% higher than last October and just 6.3% lower than in October 2007 when house prices first started to go into decline.

Meanwhile, the average value of house purchase loans rose by 11% over the year to £142,000. This could be a reflection of rising house prices and an increase in the number of higher loan-to-value mortgages being made available by lenders.

Remortgage activity continued to fall, however, with the number of approvals for borrowers switching loans dropping to 20,685 from 21,054 in September. The figure was 61.8% down on October last year, the month when the Bank of England started cutting interest rates.

The BBA said gross mortgage lending had risen slightly in October but remained 20% lower than a year ago, and would continue to be weak unless there was an increase in remortgaging.

Net lending, which strips out redemptions and repayments, held firm at £3.1bn, but unsecured lending remained subdued as consumers focused on paying down their debts and building up savings.

The BBA said demand for personal loans had been particularly weak, with outstanding balances falling by £2.9bn in the first three quarters of the year.

The group's statistics director, David Dooks, said: "The longer it takes to emerge from recession, the longer we will see households and businesses continue to borrow with caution.

"The banks' mortgage lending, still growing by more than 4% a year, shows one aspect of consumer behaviour, but unsecured borrowing is subdued and people are building up deposits."

Howard Archer, chief UK economist at IHS Global Insight, said the number of approvals was still "markedly down" on the average monthly level of 61,000 reported by the BBA over the past 12 years, and there were signs the upward trend was "losing steam".

"Mortgage approvals only increased by 165 in October and are only up by 1,543 over the past three months from 40,695 in July," he said.

Archer added: "With unemployment high and still rising, earnings growth low and still falling, and house price/earnings ratios currently moving back up we suspect that the recent firming in house prices will fizzle out before long.

"This will be even more likely if recently higher house prices lead to more properties coming on to the market, thereby moving the supply/demand balance away from vendors towards buyers, who we suspect will remain limited for some time to come."

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said would-be buyers were still finding it hard to find homes they could afford.

"Although the availability of finance for homebuyers has increased, with some evidence of a modest relaxation in the strict control on loan-to-value ratios for first-time buyers, access to the property market still remains challenging, particularly given the rebound in residential prices in recent months.

"That said, the lack of supply of property coming on to the market is proving to be an increasingly important obstacle to a more meaningful pick-up in transaction levels. Inevitably, the number of new instructions will remain fairly subdued into the year end, but it is crucial that more fresh stock is placed with agents in the early part of 2010 to give the market a further boost. More importantly, this is critical to preventing a further sharp upward move in house prices."

Source: ' Guardian '

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