Mortgage approvals at 13-month high

The number of mortgages approved for house purchase rose to a 13-month high in May as buyers continued to return to the property market, figures showed today.

A total of 31,162 loans were approved for people buying a property during the month, 7% more than in April, the British Bankers' Association said.

The figure was also 16 per cent higher than it had been in May 2008, the first time the annual measure has shown an increase since November 2006.

But the ongoing weakness in the remortgage market dragged down the overall lending figures, with total advances of £7.7 billion the lowest since February 2001.

Net lending, which strips out redemptions and repayments, also fell for the third month in a row to £2.3 billion, a level last seen in early 2001, when the average mortgage taken out for house purchase was just £74,400, compared with £133,600 in May.

The number of loans arranged by people remortgaging fell further during May to a near-nine-and-a-half-year low of just 24,847, 60% below levels seen 12 months ago.

But despite falling for the fifth consecutive month, the BBA said loans for remortgaging and those for other purposes, such as equity release or buy-to-let, appeared to be stabilising at their current low level.

BBA statistics director David Dooks said: "Steady monthly increases since last November have seen the number of loans approved for house purchase recover to levels seen in early 2008, although gross and net mortgage lending show a subdued wider mortgage picture.

"However, unlike much of the mortgage market, the high street banks are still seeing lending growth and improved mortgage availability is reflected in higher average loan approval values."

The rise in the number of mortgages approved for house purchase adds to growing evidence that buyers are returning to the property market on the back of record low interest rates and recent house price falls.

Both Halifax and Nationwide reported price rises during May, while the National Association of Estate Agents said its members sold the highest number of properties during the month since October 2007.

But there are fears that the ongoing problems in the mortgage market will dampen any recovery, and economists have warned that they still expect there to be further house price falls.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The ongoing limited rise in mortgage approvals in May reported by the BBA adds to the now pretty widespread evidence that housing market activity is trending up gradually but steadily.

"Nevertheless, housing market activity is still weak compared to long-term norms.

"We believe that the pick-up in actual house purchases is likely to remain gradual for some time to come given ongoing tight credit conditions and still relatively poor economic fundamentals."

The BBA figures also showed that unsecured lending remained subdued during May as consumers instead focused on paying off their debts.

People spent a total of £6 billion on their credit cards during the month, 11% less than a year earlier, and they repaid £6.4 billion, leading to outstanding plastic debt rising by only £157 million during the month, once interest and charges were taken into account.

Demand for other forms of unsecured borrowing also remained weak, with consumers repaying £249 million more on overdrafts and loans than they borrowed in May - the 10th consecutive month during which repayments have outstripped new advances.

Low interest rates meant people continued to shun banks with their savings, with personal deposits increasing by only £476 million during the month, well down on the £2.23 billion deposited during May 2008.