UK mortgage approvals in January have dropped by more than economists forecast to an eight-month low, adding to evidence that the housing market rec

UK mortgage approvals in January have dropped by more than economists forecast to an eight-month low, adding to evidence that the housing market recovery may be losing momentum.

Lenders granted 48,198 loans to buy homes, compared with 58,223 in December, the Bank of England said yesterday. The median of 22 economist forecasts in a Bloomberg News survey was for a result of 50,000. Gross mortgage lending has fallen to its lowest level since 2000.

Bank of England policymaker Kate Barker said last week that the property market may face ‘adjustments’ as banks curb lending, and Hometrack Ltd said yesterday that price gains observed last month don’t have solid foundations. The UK’s longest cold snap in 30 years and an increase in a tax on housing transactions may have also damped activity, economists said.

‘There will be a bit of a slowdown this year,’ Vicky Redwood, an economist at Capital Economics, said in a telephone interview before the figures were released. ‘Credit conditions are still pretty tight and incomes are set to be squeezed.

There are not the fundamentals there to keep the recovery going.’

The pound fell as much as 0.1 per cent against the dollar after the report, and traded at $1.5162 as at 9.33 am in London, down 0.6 per cent on the day. The yield on the benchmark two-year gilt was up 0.5 of a basis point yesterday at 0.977 per cent.

House price data have shown a mixed picture of the property market. Values increased 0.3 per cent on the month in February, Hometrack said yesterday. Nationwide Building Society said last week that prices fell one per cent, the first decline in 10 months.

Net mortgage lending rose in January to £1.5 billion (S$3.16 billion) from £1.2 billion the previous month, the Bank of England said. Overall gross home loans dropped to £10.2 billion, the lowest level in more than nine years.

HSBC Holdings plc said yesterday that it ‘continued to support its customers’ in a ‘challenging period’ by offering £15 billion in new mortgage lending in the past year.

‘Average loan-to-value ratios were less than 55 per cent, and we grew our market share of net new mortgage lending to 11 per cent,’ the bank said in a statement.

Yesterday’s central bank report showed that consumers added to their unsecured debts in January. Net consumer credit rose by £500 million.

Economists predicted a £100 million drop, according to the median of 20 forecasts. Credit-card lending rose by £171 million, while personal loans and overdrafts increased by £330 million.

Source : Business Times – 2 Mar 2010