Mortgage lending down 11% to £7bn

Mortgage lending by Britain's major banks dropped 11% to £7.6bn during June (DAN KITWOOD / GETTY IMAGES)

Mortgage lending by Britain's major banks dropped 11% to £7.6 billion during June amid continuing lacklustre activity in the markets for house purchase and remortgaging, figures showed today.

The year-on-year decline, reported by the British Bankers' Association (BBA), comes despite signs of recovery in the buy-to-let sector as demand picks up for rental property.

The number of house purchase approvals was slightly higher than in May at 31,747 but 6% lower than June 2010, with the average approval value of £149,700 being 0.6% lower than a year ago.

The number of remortgages in June was higher than May but below the recent six-month average as expectations of interest rate rises in the near-term have receded.

BBA statistics director David Dooks said: "Banks continue to lend for house purchase but the weak mortgage market is self-evident, although some growth is coming from the buy-to-let sector to meet demand for rental properties."

The organisation added that demand for unsecured borrowing remained weak, with repayments continuing to outweigh new lending.

Howard Archer, chief UK economist at IHS Global Insight, said the trend for mortgage approvals reinforced his view that house prices will fall by around 5% from current levels by mid-2012 and end up around 10% below their 2010 peak.

He added: "The main support for house prices will come from the fact that interest rates are likely to remain very low compared to long-term norms for some considerable time to come.

"Indeed, it is looking ever more likely that the Bank of England will hold off from raising interest rates until at least mid-2012."