Mortgage approvals up 1.5% to 14-month high but housing market remains 'in deep rut'

Published 30th Aug 2011

Mortgages approved for house purchases increased by 1.5 per cent to 49,239 in July, according to new figures released today.

This marks a 14-month high, up from a four-month low in April, the Bank of England said.

However, this represented a slowdown on the previous month, when the rate increased by four per cent.

Fears about the health of the housing market persist, despite the monthly increase.

The number of approvals for remortgaging was virtually flat, after increasing by just 20 to 30,810, as the threat of an interest rate hike began to recede. This was lower than the average over the past six months of 31,340.

Howard Archer, chief UK economist at IHS Global Insight, said: 'Despite mortgage approvals rising to a 14-month high in July, housing market activity remains very low compared to long-term norms.

'With consumer confidence weak and the economic outlook currently looking pretty grim, we see little reason to change our view that modest falls in house prices are more likely than not over the coming months.'

He added that mortgage approvals have averaged around 90,000 a month since 1993, while a level of 70,000-80,000 has in the past been considered consistent with stable house prices.

He expects house prices to fall by around five per cent by mid-2012 as a result of 'troublesome economic fundamentals and low consumer confidence'.

Brian Hilliard, an economist at Societe Generale, said interest rates have fallen but consumer confidence is ‘very low’ and the market is ‘still overvalued’.

He added: 'This is a recipe for continuing weakness. The housing market is stuck in a deep rut and there is little prospect of any major improvement any time soon.'

The figures come on the day that the National Housing Federation predicted that levels of home ownership would slip over the next decade as a shortage of homes drives a rise in prices.

Chris Gardner, director of mortgage brokers Obligo, said the property market is 'now almost completely stagnant'.

He added: 'Persistently low interest rates and a steady trickle of enticing deals from lenders are being drowned out by the drumbeat of bad economic news.

'Where once buying a home was seen as a key aspiration for young Britons, many now see it as increasingly out of reach.'

Meanwhile, the Bank said that the amount of unsecured consumer credit rose by £205million in July, which was the lowest level since January and down from an increase of £378million in June.

Credit card lending rose by £259million, while there was a repayment of £54million in other loans and advances as consumers tried to pay down their borrowings and banks reined in their lending.

Richard Sexton, director of e.surv chartered surveyors, said: 'July's weak growth figures confirm that the growth we saw in June was just a flash in the pan. The mortgage market is in a state of rigor mortis, and is unlikely to revive until lenders can reach comfort about their core capital.

'Lenders have offered lots of tantalising mortgage products over the summer, but only a fraction of low income buyers have qualified for them. In practice, lenders are targeting low LTV [loan to value] borrowers - less than 10 per cent of approvals in July were for those needing high LTVs, compared to over 20 per cent in July 2007.

'Restrictive rates on high LTV products are locking the majority of first time buyers out of the property market. The autumn will see an even more subdued trend as lenders focus on recouping equity and addressing threats to their balance sheets.'

Source: ' ThisIsMoney '

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