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INSTANT VIEW - Mortgage approvals dive, credit set to tighten

LONDON (Reuters) - British mortgage approvals for house purchase fell to a record low in November, while a separate survey showed credit conditions looked set to tighten further in the next three months, Bank of England said on Friday.

The figures are likely to reinforce expectations the Bank of England will cut interest rates by at least 50 basis points next week from the current 2 percent.

The survey findings will disappoint the government which has pumped 37 billion pounds of taxpayers’ money into some of Britain’s biggest banks and offered sweeping guarantees to encourage them to lend.

KEY POINTS

- Mortgage approvals lowest since series began in Jan 1999

- Highest annual rate of M4 money growth since June 1990

- BoE credit conditions survey shows lenders expected to reduce availability of credit to households in 2009

- Spreads on corporate lending expected to widen in coming months

- Further increase in defaults on household lending expected

BRIAN HILLIARD, CHIEF ECONOMIST UK AT SOCIETE GENERALE

“Mortgage approvals are still dire. What we are waiting for is some improvement on financing.

“The credit conditions will continue to be tough. It is an issue where it still requires the government to try to find ways of encouraging banks to lend. If they do that, demand is there to generate stronger lending.

“If it can turn the tap on, I think we will see an improvement in these levels.”

GEORGE JOHNS, UK ECONOMIST, BARCLAYS CAPITAL

“Secured and unsecured credit fell and we expect to see more of this come through in the next three months. There’s no let-up in sight.”

STEPHEN LEWIS, CHIEF ECONOMIST AT INSINGER DE BEAUFORT

“The only real surprise is from the Bank of England that mortgage demand did not fall during the fourth quarter, but it does not look as if that demand will be satisfied because lenders will be tightening their levels.

“Banks are trying to widen their margins. If we do see any more rate cuts from the Bank of England, we will probably see them trying to widen margins. Even so, I think there will probably be a cut of about 50 basis points this month.”

MATTHEW SHARRATT, UK ECONOMIST, BANK OF AMERICA

“There just doesn’t seem to be any floor at the moment to any of the housing market data. That is highlighted again with mortgage approvals hitting a fresh record low. It’s at an expectional weak level.

“There’s no end in sight to the pain in the housing market. House price indicators will continue to tumble in coming months.”

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