UK mortgage approval hits 12-month high
The number of mortgages approved for people buying a home in the UK rose to a 12-month high during April, but economists warned that house prices still had further to fall.
The Bank of England said today that 43,201 mortgages for house purchase were approved during the month, the third consecutive increase and the highest figure since April last year.
There was also an improvement in net mortgage lending, which strips out redemptions and repayments, with this rising from £640m (€740.65m) in March to £973m (€1.12bn) in April.
The figures contribute to a recent run of positive data on the housing market, with Nationwide reporting a 1.2% jump in house prices during May, the second increase in three months.
There is also growing evidence that potential buyers are returning to the market on the back of record low interest rates and recent house price falls.
However, while most economists now agree that activity in the housing market has passed its low point, they have cautioned that it was too early to talk about a recovery.
Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club, said: "It seems that the housing market may be stabilising, albeit at a low level.
"However, as unemployment continues to rise and acts as a drag on prospects we are unlikely to see house prices recover in the short term. Indeed, approvals are still a long way from levels that indicate increasing prices."
Howard Archer, chief UK and European economist at IHS Global Insight, said the increase needed to be put in perspective, with approvals for house purchase still 22% lower than they were a year ago, and less than half the average level of 98,000 a month seen between 1993 and 2007.
He said: "Despite the recent limited pick-up, mortgage activity is still down at a level that is consistent with falling house prices.
"Furthermore, despite steadily rising buyer interest, we believe that the pick-up in actual house purchases is likely to be gradual and fitful for some time to come given still poor economic fundamentals and ongoing tight credit conditions."
He added that the group expects house prices to fall by a further 10% to 12% before the bottom of the market is reached in 2010.
The mortgage drought is expected to continue to act as a brake on the housing market recovery as lenders struggle to raise the funds they need through the wholesale money markets.
Council of Mortgage Lenders economist Paul Samter said: "Limited lending capacity and the impact of further job losses are likely to act as a ceiling for how far the improvement can continue, although there could be further modest rises in the coming months."
The ongoing problems in the mortgage market were reflected in figures released by the Building Societies Association (BSA) today which showed lending by mutuals continued to contract during April, with repayments outstripping new advances for the fourth month in a row.
Net mortgage lending was minus £722m (€835.77m) during the month, meaning £722m more was repaid to the sector than was lent through new mortgages.
Building societies also suffered a bad month on the savings front, with consumers withdrawing £811m (€938.8m) from savings accounts, leading to the value of deposits held by the sector increasing by a subdued £80m (€92.6m), compared with a £2.92bn (€3.38bn) jump in April 2008.
If British consumers continue to withdraw their savings from building societies, it could lead to a further reduction in mortgage lending by the sector, which relies on using customer deposits to fund its loan book.
Brian Morris, head of savings policy at the BSA, said: "In the current low interest rate environment there is evidence that households are looking to repay debt rather than save and it is possible that there will be a net withdrawal, before interest credited, from the total UK savings market in 2009."
He added that banks which had received state support were able to compete unfairly for savers' money, and steps needed to be taken to ensure British government backing did not distort competition.
