Mortgage lending at eight-year low

Mortgage lending slumped to an eight-year low during April but there were further signs that activity in the housing market has stabilised, figures showed today.

Net lending by the major banks totalled just £2.7bn during the month, the lowest figure since March 2001, the British Bankers' Association said.

But the number of mortgages approved for house purchase increased to the second highest figure in just over a year as buyers returned to the market.

A total of 27,685 mortgages were approved for people buying a new property during the month, 4 per cent more than in March, and only 16 per cent lower than a year earlier, building on evidence that house purchase activity has now passed its trough.

But the average value of these mortgages has dived from £155,100 in April last year to £129,100 last month, reflecting the steep house price falls seen during the past year.

The number of people remortgaging to a better deal fell for the fourth month in a row during April to hit a near 10-year low.

Only 25,418 remortgage loans were approved during the month, as historically low interest rates mean many homeowners are better off staying on their lender's standard variable deal when their existing mortgage comes to an end, rather than switching to a new mortgage.

There was also a further decline in mortgage approvals for equity release and buy-to-let properties.

The steep decline in remortgage activity is dragging down the total lending figures, with the value of all mortgages approved falling slightly to £7.2bn during the month, despite the value of approvals for house purchase rising.

David Dooks, British Bankers' Association (BBA) director of statistics, said: "The house purchase part of the mortgage market appears to have stabilised, with slightly more approvals coming through, although April's weak net mortgage lending reflects the lower number of approvals in previous months.

"Households' uncertain financial circumstances not surprisingly continue to dictate consumer behaviour, both in the housing market and in generating only low demand for new personal loans."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The very modest rise in mortgage approvals in April reported by the BBA adds to the overall evidence that housing market activity has very likely passed its worst point helped by the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates.

"But it is still very weak compared to long-term norms. Furthermore, the BBA data reinforce our belief that the pick-up in housing market activity will be gradual and fitful for some time to come, given ongoing very poor economic fundamentals and still tight credit conditions."

Credit card debt edged up by £178m during the month, as repayments continued to match new spending.

Lending through loans and overdrafts fell by £59m in April, meaning people repaid £59m more than they borrowed.

The BBA said demand for personal loans remains very weak compared with a year ago, as consumers tighten their belts in the face of the current economic uncertainty.

Savings levels rose for the third month in a row, increasing by £1.8bn, more than double the previous month's £700m rise.

But the group said the overall trend for saving in bank accounts continued to decline.