23
Jun
'Steady rise' in mortgage lending
Mortgage approvals by the UK's major banks have continued the
steady rise of the last six months, figures show.
The number of approvals for house purchases rose to 31,162 in
May, up 15.8% compared with the same month a year ago.
But the British Bankers' Association (BBA) data also shows that
borrowing on credit cards has dropped owing to householders'
economic uncertainty.
Various lenders have raised the cost of fixed-rate mortgages in
recent days.
Demand shrinks
Despite the rising number of approvals - a signal of future
activity in the housing market - the BBA said that the mortgage
picture remained subdued overall.
Net new mortgage lending, of £2.3bn in May, was again at
its lowest level since March 2001, having fallen from £2.5bn
in April.
BBA statistics director David Dooks argued that High Street
banks were loosening their lending constraints and offering
mortgages to people who did not have a large deposit to give.
But he said that consumers' appetite to borrow had been hit by
uncertainty over jobs, house prices and the state of the economy in
general.
This also meant that demand for new loans was contracting, and
spending on credit cards was down 11.4% on a year ago.
With interest rates still at a record low, the number of people
remortgaging has continued to fall. Approvals were down 60% to
24,847 in May as many householders simply stuck with their lenders'
variable rates.
Low interest rates - with the Bank rate still at 0.5% - were
also hitting savings, with the BBA seeing a low level of new
deposits being made by customers, who are likely to be searching
elsewhere for higher returns.
Raising rates
The recent drop in house prices and low interest rates has
tempted some people back into the housing market.
However, the capacity of banks to lend remains tight and so this
has caused them to put up the cost of home loans, according to Ray
Boulger, of mortgage broker John Charcol.
Nationwide and Barclays announced this week that they were
raising the cost of their fixed-rate mortgages. This comes after
the cost of inter-bank borrowing led most lenders to raise rates a
week ago.
But Mr Boulger warned that any recovery of demand in the housing
market could be stunted if the Bank rate rose, as predicted, in the
coming months.
"The modest recovery in the housing market is in danger of being
nipped in the bud," he said.
Negative equity
A report by ratings agency Fitch has suggested that, owing to
falling prices, 23% of borrowers in the UK could face negative
equity by the time property values hit their trough.
Negative equity is the situation where someone's house has
become worth less than their mortgage.
If its peak-to-trough prediction of a 35% drop in house prices
was correct, Fitch said that - by value - a third of all home loans
would be in negative equity.
The areas already most affected were Northampton, Nottingham and
Derby, the ratings agency said.
A separate survey by website Findaproperty.com found that
average rents in the UK increased for the first time since August
2008. They went up by 0.5% month-on-month to £823, the
research found.
Source: bbc.co.uk/news Tuesday 23rd June 2009