Mortgage approvals and house prices fall

The Bank of England said there were 42,563 approvals in December, a drop of nearly 5,000 from November’s figure. It leaves mortgage lending at its lowest level since March 2009 when the economy was in the middle of the recession.

The net lending figures for December – which leaves out mortgage redemptions and mortgage repayments – were down by £298million, as homeowners repaid more than the lenders advanced.

The net lending figure for the year was £8.15billion, some £3billion down on 2009. It’s the lowest level since the Bank of England’s records began in 1987.

The Bank’s figures coincide with a drop in property values. The Nationwide said they were down by 0.1 per cent in January leaving house prices 1.1 per cent lower than this time last year, with the average UK home now costing £161,600. The Nationwide warned that the outlook for the housing market was “highly uncertain”.

“We maintain the view that house prices will fall by around 10 per cent from their peak 2010 levels by the end of 2011.” Howard Archer, IHS Global Insight

Howard Archer, chief UK and European economist at IHS Global Insight, said the housing market remains stuck in the doldrums. “We believe that the fundamentals remain largely unfavourable for the housing market. We maintain the view that house prices will fall by around 10 per cent from their peak 2010 levels by the end of 2011.”

Paul Diggle – at Capital Economics – agreed, saying the drop in mortgage activity is affecting house prices: “With lending unlikely to pick up significantly this year, due to constraints on both supply and demand, recent falls in house prices are unlikely to prove short-lived.”

December’s figures also show that people borrowed to fund their Christmas – unsecured borrowing was up by £181 million, outstanding credit card debt rose by £41 million, and borrowing through loans and overdrafts increased by £140 million.

The one bright note was in manufacturing – new data showing that the sector is growing at its fastest pace for almost two decades. The Chartered Institute of Purchasing and Supply’s (CIPS) manufacturing activity index was up to 62, a good sign when anything over 50 indicates growth.

The figures also show record growth for new orders and employment thanks to higher demand in the UK and overseas. The CIPS chief executive David Noble said they gave a “much-needed kick-start to 2011”.