Mortgage approvals begin to rise slightly

The number of new mortgages approved for home buyers increased slightly during December, according to the Bank of England.

There were 41,000 mortgage approvals, up from 37,000 in November, but still the second lowest figure on record.

At the same time, HM Revenue & Customs stated that UK property sales were picking up. But lending and industry experts have warned that banks are still short of money and mortgage lending is still likely to decline.

Over the whole of 2008, lending slumped by 59%, with just 529,000 home loans approved, compared with 1,270,000 during 2007.

Credit card borrowing

The squeeze on lending and borrowing, brought about by the global credit crisis and the recession, has slowed spending on credit cards and other consumer loans.

The Bank’s figures show that all unsecured (non-mortgage) borrowing, such as credit cards bank loans, and hire-purchase agreements, rose by only £298m in December.

This was the second lowest monthly increase since February 1994, when the UK economy was coming out of the last recession.

In fact debt outstanding on credit cards fell by £65m, the first time there has been a net repayment of credit card debt since May 2007.

In the past few weeks some personal finance commentators have suggested that activity, if not prices, in the housing market might be about to pick up.

The level of completed home sales recorded by HMRC in December was the highest for five months.

The slashing of interest rates in the past few months by the Bank of England has meant that mortgages are much cheaper to repay, though new borrowers still have to raise the sizeable deposits needed to obtain a home loan.

The Royal Institution of Chartered Surveyors’ (Rics) chief economist, Simon Rubinsohn , suggested mortgage approvals might rise again in the next few months.

“The pick-up in activity reflects in part the increased interest from buyers who are being attracted to the market by both the fall in house prices and drop in mortgage rates,” he said.

But Vicky Redwood, of the economic consultancy Capital Economics, said people should not get too excited.

“For a start, the rise [in approvals] from 28,000 to 32,000 simply reversed November’s drop - approvals are still 76% down on their peak,” she said.

“Meanwhile, we find it hard to see approvals picking up significantly further when credit is still so hard to get.”