Mortgage lending falls

23 September 2009

The number of mortgage approvals fell for the first time in seven months in August but was up 81% compared to a year ago, according to new figures from the British Bankers’ Association (BBA).

Despite the fall, the organisation says there are signs mortgage lending has stabilised for the main high street banks. There were 38,095 mortgages approved for house purchases by banks in August, down from a 17-month high of 38,186 in July.

Mortgage approvals for house purchases reached its lowest point of just 18,330 in November 2008. But although mortgage approvals in August were up 81.4% from the same month in 2008, they were still well below the average monthly level of 61,000 reported by the BBA over the past 12 years.

Howard Archer, chief UK and European economist at IHS Global Insight, says the BBA data indicates mortgage activity is currently stabilising at a level significantly above its 2008 record low levels, but still well down on long-term norms.

“While housing market activity has been lifted by the still significant fall in house prices from their 2007 peak levels and low mortgage interest rates, the upside continues to be limited by unfavourable economic fundamentals and tight credit conditions,” he adds.

The data shows remortgaging activity levels remain low. The number of approvals for remortgaging fell to 26,124 from 30,414 the previous month. Remortgaging is down 47% from August 2008.

Net mortgage lending rose to £2.8 billion from £1.9 billion in July, representing a year-on-year growth of 4.6%, while gross mortgage lending edged up to £8.6 billion from £8.5 billion in July.

The BBA says gross mortgage lending was similar to recent months while net mortgage lending returned to trend after dipping in July.

David Dooks, statistics director at the BBA, says the main high street banks’ mortgage lending has stabilised in a market where other lenders are largely inactive.

“Loans approved for house purchase have recovered to early-2008 levels, but low levels of customer demand and a limited number of properties coming onto the market will continue to moderate lending,” he adds.

The BBA data also shows more people are building up their savings. Personal deposits rose by a net £3.3 billion in August, up 3.7% from a year ago. Consumer credit fell by 0.6% compared to last August.

“In reaction to the economic conditions, consumers appear to be building up their savings and controlling their appetite for unsecured borrowing,” says Dooks.

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