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Mortgage approvals at 20-month high

The number of mortgage approvals for house purchases climbed to a 20-month high in August, figures showed today, as borrowers took advantage of a raft of rate cuts across the market.

Mortgage approvals for house purchases increased nearly 6% to 52,410 last month, the Bank of England said, while remortgages surged nearly 10% to 34,688.

A number of lenders - such as Nationwide and the Post Office - have slashed rates on a range of fixed-rate mortgages as the Bank of England holds its base rate at an historic low of 0.5%

Brian Murphy, head of lending at independent mortgage broker Mortgage Advice Bureau, said the figures reflected "exceptionally competitive fixed rates on the market at present".

Elsewhere, the value of gross mortgage lending - which does not include repayments - increased to £11.7 billion from £11.3 billion.

The Bank's figures echo data released earlier this month by the Council of Mortgage Lenders which showed mortgage lending hitting a two-year high in August. Gross mortgage lending rose 10% on a year ago to £13.4 billion, the CML said.

Fixed mortgage rates have fallen to record lows in recent months but analysts have urged borrowers to act fast as they are unlikely to get any cheaper.

The drop in the price of fixed-rate mortgages is being driven by a fall in swap rates, upon which the deals are partially based, as the Bank's policymakers are expected to hold rates at 0.5% until 2013.

Despite the improving trend, some analysts warned the figures do not spell an upturn in activity for the market.

Samuel Tombs, UK economist at Capital Economics, said: "The weakness of forward-looking surveys and the intensifying squeeze on households' finances from rising inflation suggest that a meaningful upturn in approvals is unlikely."

Meanwhile, the Bank said the amount of net consumer credit lending rose by £459 million in August, compared with a £300 million increase in July.

However, the rise was driven by an increase in personal loan and overdraft lending, which was up £482 million, while credit card lending dropped by £23 million - signifying a net repayment.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Consumer desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence which reflects heightened concern over the outlook for the economy and jobs."