Housing market slows even further as mortgage lending stays subdued

THE housing market slowdown deepened last month as mortgage lending by the UK's high street banks continued to fall.

Mortgage lending fell 11 per cent in June to 7.6 billion, the British Bankers' Association (BBA) revealed yesterday, despite an increase in buy-to-let loans.

The number of approvals for house purchase was up slightly from May, to an 11-month high of 31,747, but it was 6 per cent below the level of a year ago.

The value of the average mortgage approved fell 0.6 per cent to 149,700 and experts say there is little prospect of an upturn in housing market activity in the near future.

David Dooks, statistics director at the BBA, said: "Banks continue to lend for house purchase, but the weak mortgage market is self-evident, although some growth is coming from the buy-to-let sector to meet demand for rental properties."

The BBA's update came on the back of other similarly downbeat reports in recent weeks. The number of home sales in Scotland plunged in June, according to the latest survey from the Royal Institution of Chartered Surveyors.

Surveyors said that with more homes on the market than people looking to buy, prices were falling and were likely to continue doing so over the coming months.

Nationwide Building Society, one of the UK's biggest lenders, said earlier this month that a housing market recovery is now highly unlikely this year. The warning came as it reported a 3.2 per cent drop in Scottish house prices since last summer.

Howard Archer, chief UK and European economist at IHS Global Insight, said yesterday: "Although they were at an 11-month high in June, mortgage approvals were still very low by long-term norms and there is currently little evidence that housing market activity is shifting up a gear."

The subdued BBA figures reinforced Mr Archer's belief that house prices will fall by another 5 per cent in the next year.

"We anticipate that house prices will trend down modestly over the coming months as squeezed purchasing power, tightening fiscal policy, a soft labour market and worries over the economic outlook weigh down on potential buyers."

New research shows that prices are not falling in all areas of the Scottish market, however. Asking prices for prime properties in Scotland - those in the top 25 per cent by value - rose 2.7 per cent in June, three times faster than the rest of the UK market, according to property website PrimeLocation.com.

The average prime property asking price in Scotland is now at an 11-month high of 402,754, a rise driven by a shortage of homes available in the higher price bands.Nigel Lewis, property analyst at PrimeLocation.com, said: "Scotland is now the fifth most expensive region in the UK for prime property and its recent strong performance is being driven by increasing competition between buyers for its most desirable properties."

But the outlook for household finances remains bleak, with the BBA revealing that bank customer deposits and savings rose by just 6.1bn in the first half of this year, compared with a 15.9bn increase in the same period in 2010.

With interest rates unchanged, the trend suggests that more people are turning to their savings to pay household bills. It also found that credit card lending was at its lowest level this year in June as Britons sought to pay off their debts.