2010.11.2306:44:00UTC+00UK Mortgage Approvals At 19-Month Low

Despite low interest rates and stamp duty holiday, the British mortgage market remained subdued in October with approvals falling to a 19-month low.

Banks approved 30,766 mortgages for house purchase in October, down from a downwardly revised 31,058 granted in September, figures from the British Bankers' Association showed Tuesday. That was less than the expected figure of 31,000. Mortgage approvals decreased for the third straight month in October.

Housing market activity remains stuck in the doldrums, which seems highly likely to maintain downward pressure on prices, said IHS Global Insight economist Howard Archer. "Much will obviously depend on mortgage availability, the amount of houses coming on to the market and how well the economy holds up as the fiscal squeeze increasingly kicks in."

Capital Economics economist Paul Diggle forecasts mortgage approvals to remain well below a more normal, pre-recession level for at least the next 12 months and possibly for much longer than that.

Within total 73,026 mortgages approved in October, re-mortgage as well as equity withdrawal and other purposes increased from the prior month's level.

Data showed that annual growth in banks' net mortgage lending was 3.5% in October, substantially ahead of the 0.8% for the whole mortgage market in September. Demand for unsecured credit remained weak, falling 1.7% over the previous year. Meanwhile, credit card borrowing showed a slight increase.

Further, net mortgage lending increased by GBP 1.7 billion in October compared to GBP 3 billion in the same month in 2009. At the same time, gross mortgage lending of GBP 7.6 billion in October was the lowest total since February 2001. It was 16.1% lower than a year ago.

The Council of Mortgage Lenders on November 18 said gross mortgage lending was estimated at GBP 12.4 billion in October, the lowest total for the month since 2000.

Some sectors are showing slower contraction rates in October but overall, growth rates for lending to non-financial companies remained weak, BBA said. Large companies are resorting to equity and bond markets as an alternative source of finance.

"Credit availability for viable businesses has improved, so a continued contraction in net lending growth reflects repayment behaviour, particularly by larger companies," commented BBA statistics director David Dooks.

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