UK Economy

Mixed lending data point to stagnant housing market

LONDON (Reuters) - British mortgage approvals rose slightly more than expected in April but net mortgage lending growth lagged, according to Bank of England data on Wednesday, suggesting a durable housing market recovery is still some way off.

A man walks past a house for sale in Coalville on February 17, 2009. REUTERS/Darren Staples

But there were signs that the central bank’s 200 billion pound cash injection into the economy was bearing fruit, with money growth to private non-financial firms rising at its fastest rate on record.

The Bank of England said mortgage approvals edged up to 49,871 in April from 49,008 in March and the highest since December. That was above analysts’ forecasts for a reading of 49,250 but still some 15 percent below their November peak.

And net mortgage lending rose less than expected, up 490 million pounds in April from 168 million in March and below forecasts for a rise of 700 million pounds.

The mixed mortgage figures reinforced the view that house prices may be no better than stagnate this year, and analysts said weak consumer lending threatened to limit Britain’s recovery from its deepest downturn since World War Two.

“The latest figures suggest that housing market activity is still languishing at relatively low levels,” said Vicky Redwood at Capital Economics.

House prices have rebounded by around 9 percent from their trough in spring 2009, according to the Halifax house price index, but monthly price growth has slowed this year, partly due to the expiry of a tax break for cheaper properties at the end of 2009.

Moreover, last year’s price gains were mainly due to a lack of properties being put on the market, but that is now changing and most experts reckon the market will show little growth this year.

“What’s more, with consumer confidence weakening again, credit conditions slow to loosen and a fiscal squeeze looming, we still think that approvals will struggle to rise any more quickly than this,” Redwood added.

Britain’s new coalition government has already announced 6 billion pounds in spending cuts for the current fiscal year and tougher measures are expected to be unveiled in an emergency budget on June 22.


The austerity programme is likely to result in thousands of job losses in the public sector -- which employs around a fifth of Britain’s workforce -- at a time when unemployment is already running at a 14-year high.

The downward impact of fiscal tightening on the economy is likely to encourage the Bank of England to keep borrowing costs at their record low 0.5 percent for the rest of this year at least.

But there are already signs that consumers are starting to worry about how the spending cuts will affect them, and that could be one reason why people are seeking to pay down their debts now rather than rack up new borrowing.

Wednesday’s data showed consumers repaid a net 136 million pounds in unsecured credit -- the first since November 2009 -- and confounding forecasts for net lending to rise to 300 million pounds.

“The fact that both mortgage lending and consumer credit remain so weak will be a key factor constraining the UK recovery this year,” said Hetal Mehta, economist at the Ernst & Young ITEM Club.

And she said that the latest strains on financial markets could encourage banks to further tighten up on lending, limiting spending and investment that are crucial to driving recovery.

“Not only are consumers cautious, but banks remain wary about lending to all but the safest of borrowers.”

Nonetheless, other data showed that the supply of credit to private businesses was continuing to pick up and suggested the BoE’s 200 billion pounds of quantitative easing is still working through the system.

The BoE’s preferred money supply gauge -- M4 excluding intermediate other financial corporations -- accelerated to a 3-month annualised rate of 6.6 percent from 5.4 percent in March -- the highest since the series began in September 2009.

Still, headline M4 money supply growth was flat on the month in April, leaving the annual growth rate at 3.3 percent -- the weakest since September 1999.

Editing by John Stonestreet and Jason Webb