Despair for first-time buyers as new mortgage lending stays near two-year low

Published 23rd Feb 2011

First-time buyers received more bad news today as it emerged approvals for new mortgages remained close to a two-year low in January.

Just 28,932 loans were approved for people buying a property during the month, broadly unchanged from December's figure, which was the lowest since January 2009, according to the British Bankers' Association.

But there was a 5 per cent jump in the number of people remortgaging, as homeowners opted for fixed-rate deals as speculation increased that the Bank of England would raise interest rates sooner than previously thought.

The BoE's Monetary Policy Committee has kept the base rate at its historic low of 0.5 per cent, but minutes of the February meeting released today showed there were signs an increase will occur soon after more members voted for it than on previous occasions.

A total of 28,907 remortgage loans were approved during January, 28 per cent more than a year ago, and only slightly down on November's figure, which was a 16-month high.

Howard Archer, chief UK and European economist at IHS Global Insight, said: 'The BBA data point to the housing market starting 2011 on the back foot - as it ended 2010.

'Housing market activity remains stuck in the doldrums, which seems highly likely to maintain downward pressure on prices in the early months of 2011 at least.

'Further bad news for the housing market is the now very strong possibility that the Bank of England will start to raise interest rates within the next few months to counter above-target and rising inflation.'

Net mortgage lending, which strips out redemptions and repayments, rose to £1.6 billion, 75 per cent above December's figure and the highest level since August last year.

But the increase is likely to in part reflect the severe winter weather seen during December, as well as the festive season, both of which contributed to people delaying buying a home.

The figure is also still only half the level of net lending of more than £3 billion a month which was seen during 2009, while at just under 29,000, mortgage approvals for house purchase are well below the 70,000 to 80,000 approvals a month that are thought to be consistent with a stable housing market.

Unsecured borrowing continued to be subdued during January, with consumers repaying £217 million more than they borrowed.

Within the total, credit card lending rose by £106 million, but this was more than offset by a £323 million contraction in borrowing through loans and overdrafts.

It was the 18th consecutive month that people have repaid more than was advanced through loans and overdrafts.

Consumers increased their savings levels slightly during January, setting aside £1.59 billion, up from £1.45 billion in December, but well down on the £5.36 billion that was deposited in November.

Overall, the amount people have deposited has increased by 5 per cent during the past year.

Source: ' ThisIsMoney '

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