Mortgage approvals levelling out

Mortgage lending by house buyers may have reached a trough

The number of mortgage approvals in January for house purchases held steady at 31,000 the Bank of England has said.

And although approvals are still less than half the level of a year ago, they have now averaged 31,000 a month for the past six months.

This suggests the slump in mortgage lending seen during the past year and a half may have now reached its trough.

Total borrowing by individuals rose by just £1.1bn in January, the smallest increase since records began in 1993.

The monthly increase in all mortgage lending, both for house purchases and for extra borrowing, was just £700 million.

This was one of the smallest increases on record, and just 10% of the increase seen in January 2008.

'Substantial deposits'

Building societies in particular have suffered from the slowdown in mortgage borrowing, with their new lending actually outstripped by the amount of money borrowers repaid on their mortgages.

The number of deals available for those with a 10% deposit has fallen and... they are far from competitive. Michelle Slade, Moneyfacts

Simon Rubinsohn of the Royal Institution of Chartered Surveyors (Rics), said there was an urgent need for more money to be injected into the mortgage market.

"[The] disconnect between buyer enquiries and actual mortgages approved highlights the inability of many buyers to access the property market at the present time because of the substantial deposits being sought by lenders," he said.

"Subsequent announcements by both Northern Rock and RBS indicate that a little more funding will flow into the mortgage market over the coming months but as things stand, this will only boost the available finance by in the region of 10% compared with 2008."

Mortgage rationing

The number of mortgage deals available has risen slightly to 1,398, according to the financial information service Moneyfacts.

MORTGAGE PRODUCTS AND DEPOSIT NEEDED: FEBRUARY 08 VS MARCH 09 0% deposit - down from 182 to 10 5% - down from 1,023 to 3 10% - down from 1,197 to 101 15% - down from 245 to 237 20% - down from 243 to 126 25% - down from 669 to 545 40% - up from 24 to 376 Source: Moneyfacts UK mortgage market in graphics

However there has been no improvement in their availability to people with small deposits.

Two thirds of those deals are only on offer to those who can put down at least 25% of their property's purchase price.

And the number of mortgage deals needing just a 15% deposit has risen slightly from 220 a month ago to 237 now.

But loans requiring just a 10% deposit, once the benchmark deal among lenders, have become even scarcer then before.

There are now just 101 of them, compared with 120 at the start of February and 1,197 at the beginning if February 2008.

"Once again the number of deals available for those with a 10% deposit has fallen and with the average fixed rate today standing at 6.31%, they are far from competitive," said Michelle Slade of Moneyfacts.

"In comparison, someone with a 40% deposit can get an average rate of 4.84%.

"First time buyers... are meant to be the lifeblood of the property market, but at the moment there is no incentive for them to get on the first rung of the property ladder," she added.

'Wary lenders'

Adrian Coles of the Building Societies Association (BSA) said the housing market was still very depressed.

"Potential buyers may not enter the market while it appears that house prices are likely to continue to fall," he said.

"Lenders may also be wary about granting loans in a declining market and in the current unsettled market conditions will have concerns about the long term availability of funding," he added.

Meanwhile building societies saw the value of their savers accounts shrink by £390m compared with the situation year ago when their funds grew by £594m.

Mr Coles said this was not unusual - with more money having been taken out of accounts than paid in for six Januaries out of the last ten.

"Savers take money out of their accounts to pay for Christmas expenditure," he said.