Page last updated at 07:58 GMT, Sunday, 1 February 2009

Mortgage approvals rise slightly

Woman walks past an estate agency
The property market slump is likely to continue in 2009

The number of new mortgages approved for home buyers picked up slightly in December, says the Bank of England.

There were 31,000 mortgage approvals, up from 27,000 in November, but still the second lowest figure on record.

At the same time, HM Revenue & Customs said that property sales were picking up.

But lending and industry experts have warned that banks are still short of money and mortgage lending is still likely to decline.

Over the whole of 2008, lending slumped by 58%, with just 519,000 home loans approved, compared with 1,250,000 in 2007.

HMRC said completed property sales across the UK, for those worth 40,000 or more, rose in December to 61,000 from 52,000 in November.

And the HMRC figures showed that sales for the whole of last year, at 930,000, were 43% down on 2007.

"Activity in the housing market remains very depressed, and as a result the amount of mortgage lending in December was low," said Adrian Coles of the building societies association (BSA).

"House prices are widely expected to fall further and unemployment is rising, so potential buyers remain cautious and are staying out of the market as they wait for it to stabilise," he added.

Credit cards

The squeeze on lending and borrowing, brought about by the credit crunch and the recession, has slowed spending on credit cards and other consumer loans.

We find it hard to see approvals picking up significantly further when credit is still so hard to get
Vicky Redwood, Capital Economics

The Bank's figures show that all unsecured (non-mortgage) borrowing, such as credit cards bank loans, and hire-purchase agreements, rose by only 297m in December.

This was the second lowest monthly increase since February 1994, when the UK economy was coming out of the last recession.

In fact debt outstanding on credit cards fell by 67m, the first time there has been a net repayment of credit card debt since May 2007.

Green shoots?

In the past few weeks some commentators have suggested that activity, if not prices, in the housing market might be about to pick up.

The level of completed home sales recorded by HMRC in December was the highest for five months.

The slashing of interest rates in the past few months by the Bank of England has meant that mortgages are much cheaper to repay, though new borrowers still have to raise the sizeable deposits needed to obtain a home loan.

The Royal Institution of Chartered Surveyors' (Rics) chief economist, Simon Rubinsohn , suggested mortgage approvals might rise again in the next few months.

"The pick-up in activity reflects in part the increased interest from buyers who are being attracted to the market by both the fall in house prices and drop in mortgage rates," he said.

But Vicky Redwood, of the economic consultancy Capital Economics, said people should not get too excited.

"For a start, the rise [in approvals] from 27,000 to 31,000 simply reversed November's drop - approvals are still 76% down on their peak," she said.

"Meanwhile, we find it hard to see approvals picking up significantly further when credit is still so hard to get."

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