Page last updated at 10:51 GMT, Wednesday, 29 October 2008

Mortgage lending 'rises slightly'

For sale sign
Mortgage availability has been squeezed in recent months

The number of mortgages approved for house purchases in the UK has risen for the first time in a year, according to the Bank of England.

Some 33,000 home loans were approved in September, a rise of 1,000 compared with the record low of the previous month, the Bank said.

But mortgage lending was still below the average of the past six months.

Homeowners have been hoping that recent Bank rate cuts and help for banks will ease the squeeze on mortgage lending.

Traditionally, August is the quietest month for house sales and figures for that month showed that the nation's mortgage debt actually fell for the first time since records began in 1993. A revision of the figures shows that this fall was sharper than was reported at the time.

But in September, the mortgage approvals figure was up for the first time since June 2007.

Net lending was higher from building societies that it was from banks in September.

Separate figures from the Building Societies Association (BSA) showed that net mortgage lending by building societies rose for the first time since May but was still 47% lower than the figure for September last year.

Stamp duty

Part of the reason for the rise in mortgage approvals is likely to be that the government raised the threshold for stamp duty to 175,000 in early September.

The mortgage market is unlikely to recover for some time. Nevertheless, the increase in net lending in September is to be welcomed
Adrian Coles, BSA

Some analysts said the August figures were lower because of rumours at the time that the stamp duty threshold would change.

Mortgage lending was up 2.2bn in September, after a fall of 691m in August, the Bank said. The average of the previous six months was a 3.5bn rise.

The number of people remortgaging their homes was also up compared with August, the figures showed.

A number of analysts believe that lending is still "bumping around at the bottom" of a "painfully weak" mortgage market.

"It may well be we're looking at 2009 before mortgage lending starts picking up from what are pretty depressed levels," said Dominic White, of the Royal Bank of Scotland.

Mortgage approvals graph

Adrian Coles, director general of the BSA, said: "The mortgage market is unlikely to recover for some time. Nevertheless, the increase in net lending in September is to be welcomed."

Borrowing down

Borrowing on credit cards, bank overdrafts, personal loans and hire purchase agreements almost slowed to a halt in September, the Bank's figures show.

Lending remains low compared with a year ago

It rose by just 251m which amounted to an eighth of the amount borrowed last September, and was the lowest monthly figure since February 1994.

It was down from 1.1bn the previous month, although these short-term figures can be erratic. The previous six month average was 1.1bn.

"This looks to be the weakest in over a decade, and will likely be associated with sharp falls in consumption going forward, if sustained," said George Buckley, an economist at Deutsche Bank.

Hetal Mehta, senior economic adviser to the economic forecasting group, the Ernst & Young Item Club, said: "Although the fall in lending could be down to tight credit conditions, it could be a sign of consumers reining in spending.

"There is a big question about households' ability to weather the economic storm."

First-time buyers

Any increase in mortgage lending could provide a boost for first-time buyers who have found it difficult to secure a home loan.

But financial information service Moneyfacts said the the number of different mortgage deals available for people with only a 5% deposit has fallen to just 40.

It said the average interest rate on new base rate tracker home loans - which follow the movement of the Bank rate - was at the same level now as it was at the same time last year, despite a 1.25% cut in Bank rate.

"Despite the best efforts of the Bank of England to bring borrowing costs down, lenders just aren't passing the cuts on to consumers," said Michelle Slade of Moneyfacts.

In a speech, Tim Besley - a member of the Bank of England's Monetary Policy Committee which sets the Bank rate - said that the Bank rate was not a "magic bullet" that on its own would influence interest rates charged by banks.

Graph showing monthly BoE mortgage approvals  since 1993

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