Mortgage approvals hit a new high

The number of mortgages approved for house purchase rose to its highest level this year during May, figures showed today.

A total of 36,709 loans were approved by the major banks for people buying a property during the month, according to the British Bankers' Association (BBA).

It was the third consecutive month during which approvals levels have risen, but the figure was still well down on the 27-month high of 45,758 approvals reached last December.

Housing market activity got off to a slow start in 2010 due to a combination of the end of the stamp duty holiday and the severe winter weather.

But it failed to gain momentum during the spring, despite the impact of these one-off factors wearing off, leading many economists to speculate that the recovery is running out of steam.

Total mortgage advances reached £9 billion during May, also the highest figure seen this year.

But once redemptions and repayments were stripped out, net lending rose by £2.55 billion, up on April's figure but in line with the previous six-month average.

The BBA said net lending had remained subdued as homeowners were taking advantage of low interest rates to overpay their mortgages.

The group said: "Repayments continued to be stronger than usual as banks and money advisers are encouraging borrowers to use surplus cash to reduce their borrowing where possible."

It added that the major banks were currently providing around 75% of all new lending.

Remortgaging activity continued to be subdued, with only 21,229 loans approved for people switching to a better deal.

Unsecured borrowing also contracted in May, with consumers repaying £71 million more than they borrowed during the month.

Within the total, credit card lending rose by £171 million, but this was more than offset by a £242 million contraction in borrowing through loans and overdrafts.

Savings levels were low during May, with consumers increasing their deposits by just £429 million, well down on the recent six- month average of £2.9 billion.

The BBA said the low saving level suggested people were using their spare cash to reduce debt, rather than save it.

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