UK mortgage approvals hit 16-month low as housing market slows

Published: 10:35AM BST 23 Sep 2010

The number of mortgages approved for house purchase in Britain slumped to a 16-month low in August as activity in the housing market continued to decline.

For most of the year the number of loans approved for people buying a home has been running below 36,000 - a level economists consider to be consistent with house price falls Photo: Reuters

Only 31,767 loans were approved for people buying a property during the month, the lowest level since April last year, according to figures from the British Bankers' Association on Thursday.

It was the third consecutive month during which mortgage approvals fell, despite the fact that the property market usually sees a bounce in activity during the summer months.

The number of loans approved for people buying a home has been running below 36,000, a level economists consider to be consistent with house price falls, for most of this year.

David Dooks, BBA director of statistics, said: "Demand for mortgages continues to be weak despite more properties coming on to the market.

"Even with stable or falling house prices, the current economic climate makes it unlikely that demand will pick up in the near future."

Today's figures are the latest in a run of gloomy data on the housing market, with Nationwide reporting price falls of 0.9% in August.

The Council of Mortgage Lenders said earlier this week that lending in August fell to its lowest level for the month for a decade, while HM Revenue & Customs reported a fall in the number of homes changing hands during the month.

The drop in activity since the beginning of this year has prompted some economists to predict the market could be heading for a double dip.

But others have said recent falls in house prices are not unhealthy as the recovery in the property market had got ahead of improvements in the wider economy.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The BBA data showing mortgage approvals sinking to a 16-month low in August heightens our belief that house prices will trend down over the coming months.

"We suspect that house prices will fall by around 10pc between now and the end of 2011.
"In our view, the housing market really has not got much going for it at the moment, apart from low mortgage rates - and that is if you can get a mortgage."

But there was some slightly better news in the BBA figures, with net lending, which strips out redemptions and repayments, rising to £2.55bn - its highest level since February.

However, the figure was well down on the £3.35 billion advanced in August 2009.
The BBA attributed the ongoing weakness in net lending to the fact that homeowners were focusing on paying down their mortgage.

Credit card repayments were higher than new spending during the month, but once interest and charges were factored in, outstanding plastic debt rose by £172m.

Borrowing through loans and overdrafts contracted for the 16th consecutive month, with consumers repaying £187m more than they borrowed.

Savings levels bounced back in August to reach their highest level since March, when figures are often boosted by the approaching end of the tax year.

The amount consumers deposited rose by £2.19bn, up from an increase of £514m in July.