Housing in relapse as mortgage lending hits nine-month low

Published on Monday 1 March 2010 20:02

THE housing market recovery ground to a halt in January as the end of the stamp duty concession dragged mortgage lending to a nine-month low.

Mortgage approvals for house purchases slumped to 48,198 in January, down 17 per cent from December, according to Bank of England figures published yesterday.

The number of remortgages approved fell to 23,611 from 27,322, while the overall value of loans advanced in January slipped to 10.24 billion, down from 13.53bn the previous month.

Building societies also reported a sharp drop in lending yesterday, with loans amounting to 1bn in January, compared with 1.8bn in December.

The decline in mortgage activity has been attributed to January's bad weather and the end of the stamp duty holiday on Hogmanay. The threshold above which stamp duty is paid at 1 per cent returned to 125,000 on 1 January, having been lifted to 175,000 for a year in an effort to boost the housing market.

But the Bank of England's latest figures represented the second consecutive monthly drop, raising further doubts as to whether the steady recovery in mortgage ending and house prices over the past year has now stalled.

The bank's figures corroborated other recent evidence of a sharper than expected slowdown in January. The British Bankers' Association last week said the number of loans approved by banks fell by 11,000 compared with December, while gross mortgage lending slumped to a ten-year low of 9.1bn in January, according to the Council Mortgage Lenders, which warned lending could decline further when government support for the market is withdrawn. And Nationwide revealed on Friday that house prices fell by 1 per cent in February, the first decline for ten months.

Howard Archer, chief European and UK economist at IHS Global Insight, said that, while mortgage lending increased last year, it remained subdued compared with the long-term trend.

"Even at the recent peak levels around 60,000 at the end of 2009, mortgage approvals remained well below the average 92,200 a month seen between 1993 and 2009. It is considered that normally monthly mortgage approvals of 70,000 to 80,000 are consistent with stable house prices," said Mr Archer.

Lending levels are likely to have rebounded over the past month, but the improvement could be modest. Housing market data group Hometrack yesterday said new buyer registrations increased by just 8.3 per cent in February, compared with an average February jump of 25 per cent between 2004 and 2007.

Ed Stansfield, chief property economist at Capital Economics, said: "The Hometrack data suggest that the underlying level of buyer demand may be lower and more fragile than is sometimes suggested."