Modest rise in mortgage approvals

THE number of fresh mortgages approved by the big UK banks for house purchase in September was only modestly higher than August's record low and down 57% on a year earlier - signalling further residential property market weakness.

Seasonally-adjusted data published yesterday by the British Bankers' Association showed the number of loans approved by the major banks for house purchase rose from 21,342 in August to 23,422 last month.

However, the approvals number in August had been the lowest since comparable records began with the formation in September 1997 of the "major British banking groups" constituency, in the wake of the conversion of several big building societies.

As well as being 57% weaker than in September 2007, the latest approvals number was well adrift of the anaemic 27,481 average over the preceding six months.

Approvals are the most forward-looking indicator of housing market activity. The BBA said that actual mortgage lending by the major British banking groups, a slightly less timely measure, rose by a net £3.6bn in September. Although this was an improvement on August's extremely weak net advance of £2.1bn, it was well shy of the £4.1bn average increase over the preceding six months.

These figures take account of remortgaging and equity withdrawal as well as loans for house purchase.

Consumer credit from the big UK banks, taking in personal loans, overdrafts and credit cards, grew by only a net £100m in September. This followed a net increase of about £400m in August, and was also adrift of the average rise of about £200m over the previous six months.

The anaemic rise in consumer credit adds to the welter of evidence pointing to tough times on the high street in the run-up to the festive trading period.

The BBA's September lending numbers cover a period before the government's announcement on October 8 of a £50bn scheme to re- capitalise the UK banking sector and other radical measures to kick-start the interbank lending market.

BBA statistics director David Dooks said yesterday: "It was not surprising to see continued low levels of mortgage lending and approvals in September, ahead of the government's banking support announcements. Compared to a year ago, the mortgage environment has changed significantly, with supply restricted as a consequence of the situation in financial markets and demand at a much reduced level."

He noted that, "in a mortgage market that is becoming more concentrated, the high street banks provide more than two-thirds of all new lending".

The BBA said personal deposits with big UK banks grew by a net £1.1bn in September, way ahead of August's £100m increase but adrift of the £1.8bn average rise over the previous six months.

Dooks said: "Pressure on household budgets, the slowing economy and fragile consumer confidence are suppressing consumer appetite for unsecured borrowing, but personal deposits across the high street banks held up."

Howard Archer, chief UK economist at consultancy Global Insight, said: "I apologise for this analysis being virtually identical to other recent reaction pieces but there are only so many ways you can say that the housing market is up the creek and sadly lacking on the paddle front - given that a new piece of very weak housing market data or survey evidence is coming out virtually every day at the moment."

Archer added: "Despite some modest improvement compared to August's particularly awful figures, the September mortgage data from the BBA are still very weak.

"The BBA data do little to dispel the view that housing market activity continues to be suffocated by tight lending conditions and still-stretched affordability ratios."

HBOS subsidiary Halifax said earlier this month that the average UK house price had fallen by a further, seasonally-adjusted 1.3% in September. This left the average price last month about 13.3% adrift of that in September last year, the worst year-on-year decline since comparable records began in 1983.