Housing activity to remain flat after mortgage lending slumps

The housing market will remain flat until at least the end of 2012, according to forecasts unveiled as new evidence emerged of a slump in mortgage lending.

The number of mortgages approved for home loans slumped to a 2011 low of 45,166 in April, the Bank of England said yesterday. The drop to the second lowest level since March 2009 was blamed on the two extended bank holiday weekends in late April. There was also a 10 per cent drop in remortgaging activity to the lowest level since July. Howard Archer, chief UK and European economist at IHS Global Insight, said: "Mortgage approvals may have been held back to a limited extent in April by the extra bank holiday for the Royal Wedding and by the later Easter. Even allowing for any impact from those factors though, mortgage approvals are very low compared to long-term norms."

The Bank's latest lending figures, which also showed a 152 million jump to 347m in credit card lending in April, came as the Council of Mortgage Lenders (CML) published updated forecasts for 2011 and 2012.

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It predicts total mortgage lending of 140 billion this year and 150bn in 2012, compared with 363bn in 2007. Home sales will fall to 840,000 this year, down from its original forecast of 860,000 and 46,000 lower than last year, before edging up to 900,000 in 2012.

The CML said its downbeat outlook reflected continued economic uncertainty. "Our forecasts assume hesitant economic growth for the rest of 2011, as the pace of fiscal tightening intensifies and households suffer an ongoing contraction in real incomes, but a moderately more positive backdrop as we go into next year," it said.

The Bank base rate is set to stay unchanged at 0.5 per cent for most of 2011, according to the CML, before rising slowly in 2012.

But the pressure on lenders is unlikely to ease for some time, the CML added. While lenders have made good progress in repaying the state support provided in 2008, credit conditions will remain challenging, limiting the risk appetite among lenders.

The CML also believes repossessions will rise to 40,000 this year and 45,000 in 2012, up from 36,000 in 2010, with low interest rates preventing a sharper increase.

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