Mortgage approvals at lowest level since 1997 as banks conserve funds

the housing market is unlikely to get any respite soon from lending-weary banks, figures released yesterday suggest. Mortgage approvals fell to the lowest since at least 1997 in November, according to statistics from the British Banking Association (BBA).

Mortgage lenders also declinedto pass on the Bank of England's interest-rate cuts in full, analysts said, and screened potential borrowersmore closely, as they struggled to meet new requirements on balance sheet funding.

Banks granted 17,773 loans for house purchase, down 61 per cent from the same month last year, the BBA, which represents the UK's biggest banks, said. The number of home loans was 20,767 in October, the BBA added.

While the Bank of England has reduced interest rates to their lowest level since 1951, banks that have been stung by the global financial crisis are reluctant to lend against houses as their value declines, and potential buyers are concerned about losing their jobs in the recession.

The situation has led to a fall in house prices, which had long been fuelled by deals like 100 per cent – and in some cases even 125 per cent – mortgages that many lenders offered until mid-2007. Mortgage approvals are now barely one third of the average level at the peak of the housing market in 2007, the data showed.

The news spells further gloom for house prices, which are 15 percent lower than a year ago, and continues a stream of bad data that has led many economists to expect the Bank of England to cut interest rates to a record low of 1 per cent next month.

"The outlook for the housing market remains bleak," said Howard Archer, chief European and UK economist at the research firm HIS Global Insight. "Ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, faster rising unemployment, muted income growth, widespread expectations that house prices are likely to fall a lot further, and an unwillingness of many people to commit to buying a house when the economic outlook and job prospects look so bad, form a powerful set of negative factors weighing down on the housing market."

Underlying net mortgage lending showed its weakest monthly change since April 2001, rising by £2.9bn in November, down from October's £3.3bn rise.

The BBA's statistics director, David Dooks, blamed part of the drop on banks and prospective home-buyers pausing to take stock after the Bank of England slashed interest rates by 1.5 percentage points in November.