Mortgage lending plummets by 83%

Mortgage lending dived by 83% during March, fuelling speculation that the housing market recovery is running out of steam, figures showed today.

Net lending, which strips out redemptions and repayments, fell to just £318 million during the month, down from £1.85 billion in February and the lowest level since July last year, when it was negative, according to the Bank of England.

The low figure is likely to partially reflect the distortions to the market caused by the Government's stamp duty holiday, which led to people rushing through transactions on lower-value properties before the end of last year.

It can also partly be explained by the severe winter weather the country suffered at the beginning of the year, which dented housing market activity, as well as the uncertainty caused by the General Election.

But economists have warned that these factors alone cannot explain the fall in activity seen since the beginning of the year.

The number of mortgages approved for house purchase rose slightly during March to 48,901, up from a nine-month low of 46,882 in February, but still well down on the 59,572 seen last November.

Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said the latest figures were "indisputably weak".

She said: "Though mortgage approvals are up slightly on February, they are below the six-month average, and the slowdown in mortgage lending is likely to act as a drag on housing market prospects.

"The 'mortgageless recovery' is unlikely to be sustainable; house price inflation is already slipping as supply pressures abate thanks to higher prices encouraging more people to put their properties on the market."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The Bank of England mortgage approvals data do little to dilute the belief that the housing market is finding it difficult to regain momentum after flagging at the start of 2010.

"We expect house prices to be erratic over the coming months and they may very well be no better than flat over the rest of the year."

The subdued level of mortgage lending led to overall net lending to individuals rising by just £643 million during March, also the lowest level since last July, when the figure was negative.

Unsecured borrowing remained muted, with consumers increasing their debt levels by £325 million, down on the previous month's £578 million, but up on the recent six-month average.

Within the total, credit card lending rose by £190 million, while borrowing through loans and overdrafts increased by £135 million.

Building societies continued to lose mortgage market share during March, with net lending by mutuals negative for the 15th month running.

Overall, building society mortgage customers repaid £764 million more than was advanced to new customers during the month.

But on a brighter note, the value of mortgages approved rose to their highest level since last June at £1.68 billion.

The sector also endured a difficult month on the savings front, with people withdrawing £318 million more than was deposited, the 12th time this has happened during the past 13 months.