Mortgage approvals plunge in January

Published 02nd Mar 2010

Home loans at lowest level since May 2009 and suffer second consecutive monthly fall


The number of mortgages approved for house purchases dived by 17% during January as the housing market suffered a steep fall in activity, figures showed yester.

There were 48,198 homebuyer loans in the pipeline during the month, the lowest level since May 2009 and the second consecutive monthly drop, according to the Bank of England.

The number of remortgages approved fell to 23,611 from 27,322 in December.

There was also a fall in mortgage advances, with gross lending sliding to £10.24bn, down from £13.53bn in November.

In recent weeks the Council of Mortgage Lenders and British Bankers' Association have also reported a sharp fall in mortgage approvals in January, both claiming the removal at the end of last year of the temporary stamp threshold on properties costing between £125,000 and £175,000 quelled demand.

On Friday, figures from the Nationwide suggested the drop in demand from buyers could already be feeding through to house prices. It reported a 1.1% fall in prices in February, citing the stamp duty change and the wintry weather as possible factors.

The Bank's figures show that while mortgage activity was down in January, consumers' appetite for unsecured borrowing increased.

Net lending through both secured and unsecured loans rose by £2bn in January, compared with £1.5bn in December.

Consumer credit increased by £500m – nearly double December's £265m increase and a marked turnaround from the previous five months when consumers borrowed more than they repaid.

However, unsecured borrowing remained well down on the levels seen during the peak of the credit boom, when collectively consumers regularly increased their outstanding debt by more than £2bn a month.

Howard Archer, chief UK economist at OHS Global Insight, said consumers may have borrowed more in December and January to finance spending over Christmas and the January sales.

"Despite January's increase in net consumer credit, it was still muted compared with past norms. Elevated debt levels mean there is an urgent need for many consumers to improve their balance sheets, while serious concerns over jobs and the economic outlook are causing a substantial number of people to want to save more," he said.

"Meanwhile, tight credit conditions continue to make it generally difficult for people to borrow, especially unsecured loans."

Separate figures from the Building Societies Association showed savers withdrew a total of £755m from building societies and mutually owned banks during the month, more than twice the amount withdrawn in December.

The BSA's director-general, Adrian Coles, said societies were still struggling to attract cash.

"January is typically a challenging month for savers as many start to repay debt accumulated over Christmas. Nonetheless, mutuals will continue to find it difficult to attract savers as long as the base rate remains low and the market is distorted by part-nationalised banks," he said.

"We welcomed the announced removal of Northern Rock's 100% guarantee on savings, and we will continue to lobby for further reform until we achieve a level playing field for all deposit taking institutions."

Source: ' Guardian '

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