Mortgage approvals plunge 22%

THE number of loan approvals for house purchases fell nearly 22% in the year to August, according to the British Bankers' Association. The figures further fuelled fears over the health of the UK property market.

The BBA said approvals fell to 64,032 last month compared with 81,635 in August 2003, a fall of 21.6%. The number was down 4% month-on-month.

'If it continues to trend downward for the rest of the year then it's not a particularly positive sign for the housing market,' said Alan Castle, UK Economist at Lehman Brothers, noting that there is typically a six-month lag between approvals figures and an impact on prices.

The average value of a loan for house purchase was £112,100, down £112,900 in July but up from £105,300 a year ago.

Underlying mortgage lending rose £4.4bn pounds last month, the weakest since June 2002 and well below the average of £5.6bn over the past six months. The figure was roughly unchanged from a preliminary amount revealed last week.

Property market analysts will keenly watch figures on mortgage approvals due to be published by the Bank of England on Wednesday. Attention will also be focused on monthly house price surveys due from UK lenders in the next week. Last month Nationwide said house prices edged up just 0.1% while Halifax reported a 0.6% fall. On Friday, property market Hometrack said prices fell 0.3% in the month to mid-September, following 0.1% falls in the previous two months. The fall was the largest since the survey began in early 2001.

Despite the mortgage lending slowdown revealed by the BBA, its figures also revealed growth in overall net consumer credit rose by £1.2bn, the largest increase since March. Credit card borrowing was stronger than in July, growing by £600m, whilst demand for personal loans and overdrafts, rose by £600m, slightly above the average over the previous six months.

'The slowing down of net mortgage lending in August looks set to continue in the next couple of months,' said David Dooks, BBA director of statistics. 'A further weakening in the numbers of loans approved - particularly for house purchase and equity withdrawal - in August indicates that households' appetite for secured borrowing is moderating. However, consumer credit growth in August was stronger than in July, with card borrowing in line with relatively robust retail sales.'

In total, there were 201,700 mortgage approvals, down 4% on July and 15% weaker than August 2003.

The number of loans for remortgaging loans were 6% lower by number and 1% lower by value. Equity withdrawal loans were 17% lower by both number and value.

Useful links