Mortgage approvals down on average

More evidence of tighter mortgage availability emerged today after figures showed approvals remain well down on their long-term average.

The number of mortgage approvals for house purchase rose 1.5% to 49,860 in March but this is down on the previous six-month average of more than 53,000 and is a sharp drop on the relatively strong month of January, when nearly 58,000 approvals were recorded, Bank of England figures showed.

Home owners are expected to have a tougher time obtaining a mortgage in the coming months as lenders exercise caution amid the weak economy.

Lenders have already started making their borrowing criteria more restrictive, triggering a fall in the proportion of mortgages being approved, and have been putting up their mortgage rates.

More than a million home owners saw the cost of their mortgage payments increase from yesterday, with lenders blaming the weak economy and the increased cost of funding a mortgage.

Approvals for remortgaging also increased slightly to 29,511, but this figure was lower than the six-month average of more than 31,000.

Analysts have also warned that consumers' appetite for borrowing is likely to remain weak in the midst of the recession.

Lenders and estate agents reported a rush from first-time buyers earlier this year to beat the deadline for a two-year stamp duty concession, which ended in March, but warned that this surge could be followed by a dip.

Paul Diggle, a property economist at Capital Economics, said: "While the post stamp-duty concession slump in approvals for house purchase may have come to an end already, we can't help but think that a genuine recovery in approvals remains a distant prospect.

"After all, news that the UK has re-entered recession can only have dampened consumer confidence, which already looks weak relative to the level of housing market activity."

He warned that mortgage rate rises are "probably not over yet" as problems in the eurozone drive up banks' funding costs.

PA