Mortgage approvals fall to record April low

Figures from Bank of England show number of loans for house purchase at a four-month low, while consumers’ appetite for borrowing remains limited The number of loans approved for house purchase fell by 4% to a four-month low of 45,166 in April – the lowest figure for that month since records began in 1992, according to the Bank of England . Some economists blamed the low figure on the bank holidays and the royal wedding, but others said they are evidence of a continuing depression in the housing market. Loan approvals for remortgages also fell – by 10% to 28,091 in April compared to 31,201 in March, and down 20.8% on the 35,501 loans approved in February. While gross lending secured on dwellings rose marginally to £11.2bn compared to £11.1bn in March, the Bank of England also said net mortgage lending was just £0.7bn in April, up from £0.5bn in March but low compared to long-term norms. Howard Archer, chief economist at IHS Global Insight , said the Bank figures indicated that tough conditions remain for the housing sector: “Mortgage approvals have actually 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. “The relapse in mortgage approvals in April from an already low level reinforces our belief that modest falls in house prices are more probable than not over the coming months.” Brian Murphy from independent mortgage brokers Mortgage Advice Bureau was unsurprisingly more bullish: “The raft of bank holidays and the royal wedding inevitably skewed the April data, so an overall drop in the number of loan approvals and remortgages comes as no surprise. The nation went on holiday. “During May, activity bounced back and returned to the steady growth trajectory of February and March – albeit one that is naturally still at historically low levels. The ongoing drop in the number of remortgages reflects how people increasingly believe an interest rate rise is unlikely in the short term and that, if one does come, rates overall will remain very low for the foreseeable future.” April figures from the Building Societies Association (BSA), also released today, show gross lending by mutuals falling to £1.66bn from £1.74bn in March, though the April figure is a significant increase of 19% on the £1.4bn advanced in the same month in 2010. Adrian Coles, director-general of the BSA, said the year-on-year increase reflects a decision by mutuals at the start of the year to lend more: “We have come through the recession and are well-placed after two difficult years. We want to lend more. First-time buyers think they cannot afford to buy, but mutuals’ pricing has improved now and there are attractive products out there.” Meanwhile, the Financial Services Consumer Panel (FSCP) today outlined its six point plan for a “sustainable and healthy mortgage market”. It wants to see the Financial Services Authority’s Mortgage Market Review include, among other things, effective regulation to help consumers; regulatory policy to take account of wider social and economic implications; and lenders being required to judge affordability and suitability for individual consumers. Adam Phillips, chair of the FSCP, said: “Over the last few years we have seen some reckless lending by banks. Stronger regulation is undoubtedly needed to stamp out bad behaviour. However, there is a need for a balanced approach which takes full account of the social implications of any change.” Limited consumer appetite The Bank of England also announced that consumer credit rose by £0.5bn in April compared to the previous six-month average increase of £0.4bn. Credit card lending rose £0.3bn while other loans and advances rose £0.2bn. As in previous months, consumer appetite for taking on new borrowing appears to be limited while people remain keen to reduce their debt. This is borne out by statistics from the BSA which show savings held with mutuals increased by £1.5bn in April compared to an increase of £0.9bn in the same month of 2010. Coles said: “The significant inflow of funds into savings accounts during April was helped particularly by strong deposits into Isa accounts compared to April last year. “However, it will be difficult for deposit takers to maintain a positive inflow of funds this year given the squeeze on household finances. The added competition from state-backed NS&I [products] could also make attracting funds more challenging.” Mortgages Property Banks and building societies Borrowing & debt Mortgage lending figures Housing market Bank of England Mark King guardian.co.uk

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