Page last updated at 13:36 GMT, Wednesday, 2 April 2008 14:36 UK

Mortgage approvals drop further

Bank of England
Mortgage lending is going through a very big slowdown

The continuing decline in the property market has been underlined by the latest Bank of England figures.

The number of new mortgages approved for house purchase fell slightly in February to just 73,000, said the Bank.

That was a 39% drop on the same month a year ago, and leaves prospective mortgage lending at its second lowest level for 13 years.

However there was a record rise in other loans to individuals, excluding mortgages and credit card borrowing.

These loans, typically bank loans, overdrafts and hire-purchase agreements, rose by 2bn in the month.

The level of activity in the housing market will slip further over the coming months
Simon Rubinsohn, Royal Institution of Chartered Surveyors

But the Bank of England said it thought the surprising rise was largely due to students having to borrow more from the Student Loans Company because of an increase in tuition fees in the current academic year.


The mortgage approval figures were just above the 13-year record low of 72,000 in December.

They illustrate the rapid contraction of mortgage lending, due partly to falling demand, with high prices driving away first-time buyers.

The other factor that has reduced the supply of mortgages is the credit crunch, which has made it more difficult for banks and building societies to raise the money needed to lend to customers.

Mortgage providers still offering competitive loans are being swamped with applicants.

First Direct has temporarily stopped offering any of its mortgages to people who are not already its customers, so it can catch up with its paperwork.

Borrowing for house purchase has gone through a sharp slowdown since last summer and the Bank's figures show that remortgaging, which has been more buoyant recently, also dipped in February.

That month the number of new loans approved for people who are staying put, but moving their mortgage deals to new lenders, fell to 111,000 from 118,000 in January.

"The likelihood is that the level of activity in the housing market will slip further over the coming months as mortgage lenders either temporarily close their doors to new borrowers or lift interest rates," said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).

Equity withdrawal

Home owners have also become less keen to cash in on the inflated value of their homes to finance their spending on other things.

With house sales and house prices now falling in many areas, equity withdrawal slumped in the last quarter of 2007 to 7.3bn.

This was a fall of 33% compared to the previous three months, and was down by nearly half on the same period twelve months before.

It is now at its lowest level for nearly three years.

Tony Dolphin, chief economist at Henderson Investors, predicted that this sort of borrowing would fall further this year.

"It is a consequence of the reduced activity in the housing market, due to the number of transactions going down - a lot of people borrow more than they need when they move, so fewer people moving will mean less borrowing," he said.

Building societies are continuing to attract a lot of money from savers in the wake of last year's run on the Northern Rock bank.

They gained an extra 1.35bn in savings during February, which pushed the total savings figure to its highest level for any month since February 1997, according to the Building Societies Association.

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