Housing market hit by mortgage dip

FRESH doubt has been cast over the housing market recovery after the first slump in mortgage approvals for more than a year.

The number of mortgages approved for home buyers dropped to 59,023 in December, almost double the level of a year earlier but down from over 60,000 in November, the Bank of England revealed yesterday.

It was the first month-by-month slip in lending levels since November 2008 and supported expert views that the housing market recovery is running out of steam.

The amount of money loaned to buyers was also lower, with net lending – total lending after repayments and redemptions are taken out – falling from 1.56 billion in November to 1.17bn. Net lending for 2009 as a whole totalled 11.5bn – the lowest level since records began in 1987.

Chief UK and European analyst at IHS Global Insight, Howard Archer, said: "The dip in mortgage approvals in December reinforces our suspicion that housing prices are likely to suffer a limited relapse during the coming months, and will be essentially only flat over the year as a whole."

Chief property economist at Capital Economics, Ed Stansfield, said it was possible that the surprise drop in lending in December could be a blip with little long-term significance.

"At the same time, however, it does little to undermine our view that last year's house price gains look unsustainable," he added.

The December decline in lending confounded predictions of a bumper month fuelled by a rush to take advantage of the temporary stamp duty holiday before the window closed on Hogmanay.

The threshold above which stamp duty is payable at 1 per cent had been hiked by 50,000 to 175,000 in a government bid to boost the housing market, but it reverted to 125,000 on 1 January.

Council of Mortgage Lenders economist Paul Samter said it was likely there was some "bunching" of house purchases ahead of the year end in order to beat the end of the stamp duty holiday.

He added: "It should be no surprise if January and February this year appear particularly slow, if we are correct in our view that many buyers rushed to beat the stamp duty concession deadline in December."

Declining demand for mortgages could also put the brakes on house price inflation, according to Mr Stansfield.

He said: "Indeed, if we are right that employment is going to fall considerably further this year and that household incomes will remain under strong downward pressure, the data does little to undermine our view that last year's house price gains will be at least partially, if not fully, reversed this year."