New mortgage approval in UK hits 12-year low

The number of new mortgages approved for people buying a house dived to its lowest level for 12 and a half years during December, figures showed today.

The number of new mortgages approved for people buying a house in the UK dived to its lowest level for 12-and-a-half years during December, figures showed today.

The Bank of England said just 73,000 new loans were approved for people moving home during the month, the lowest figure since July 1995.

The level of approvals for house purchase was also 10% below November's figure and marked the seventh month in a row that the number of pipeline mortgages for movers has fallen.

The figures come the day after the British Land Registry said house prices fell by 0.4% during December, the first decline it has recorded since August 2005.

There is now little doubt that the British housing market is slowing down, with all the major house price indexes reporting price falls on a monthly basis.

The low level of mortgages approved for people moving home suggests the situation is likely to get worse.

Approvals for people remortgaging were slightly higher during the month at 97,000, but new business for other purposes, such as equity release and buy-to-let, continued the recent pattern of decline.

Overall, 226,000 new home loans worth £25.4bn (€34.1bn) were approved during December, well down on the average for the previous six months of 262,000 worth £28.8bn (€38.7bn).

Vicky Redwood, an economist at Capital Economics, said: "December's UK household borrowing figures suggest that the housing downturn is rapidly gathering speed.

"The recent stabilisation of new buyer inquiries has therefore done little to stop activity from sliding further. And with lenders still tightening credit conditions, activity looks set to remain weak.

"Lenders are widening their spreads, hampering the effectiveness of December's official rate cut. And the recent reductions in maximum loan-to-value ratios shows they are restricting the supply of credit too. Overall, the prospect of a repeat of the 2005 soft landing is fading fast."

Howard Archer, chief UK and European economist at Global Insight, said: "The December Bank of England mortgage approvals data provide striking evidence that housing market activity is now being substantially undermined by both stretched affordability and tightening lending practices.

"This adds to the already intense pressure on the Bank of England to cut interest rates next week, and to enact further reductions thereafter."

Total mortgage lending fell for the third month in a row during December to £26.64bn (€35.8bn).

But, on a brighter note, net lending, which strips out redemptions and repayments, increased slightly to £8.56bn (€11.5bn), up from £8.01bn (€10.76bn) in November.

Unsecured lending remained subdued during December, with outstanding debt on credit cards, overdrafts and loans rising by just £557m (€748.23m), the lowest level since April last year and less than half the average increase seen during the previous six months.

Credit card spending was strong in December, with people putting £11.09bn (€14.9bn) worth of purchases on their cards, but once repayments were taken into account, net plastic lending rose by just £292m (€392.25m).