Mortgages fall to seven month low

26/03/13

By Tom Midlane

Mortgage approvals fell to a seven-month low in February, according to figures from a leading trade association.

Despite repeated Government attempts to kick-start the housing market, last month mortgage approvals for house purchases were down 6.3 per cent year-on-year, the British Bankers' Association revealed.

The number of mortgages green-lightened also dropped on a monthly basis to 30,506, down from January's figure of 31,983.

In his Budget last week, Chancellor George Osborne last week unveiled the new Help to Buy scheme, which will offers buyers an interest-free loan from the Government and provide a guarantee to underpin a borrower's mortgage.

The new initiative will run alongside the existing Funding for Lending Scheme (FLS), which offers cut-price money to banks and building societies if they increase lending.

Matthew Pointon, economist at Capital Economics, said the latest dip in lending means that the initial boost to mortgage approvals from FLS's launch in August has now been "reversed" and the scheme is "struggling" to make any significant impact.

He said that despite Government intervention, mortgage approvals are refusing "to break out of the narrow band" they have languished in for over three years.

"Although they have cut mortgage rates, banks remain reluctant to lend given the evidence that house prices are overvalued," Mr Pointon added.

"The Help to Buy scheme is designed to address this hurdle, but it will not start until 2014 and success is far from guaranteed."

IHS Global Insight economist Howard Archer said February's fall was a reminder that while the housing market may have stabilised, it was "far from racing ahead".

Gross mortgage borrowing stood at £7.8bn in February 2013, with repayments totalling £8.2bn.

Firms also continued to pay back debt faster than they take out new loans, with borrowing by non-financial companies falling by a net £1.8bn in February, the study showed.

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