New home loans up 5%

The number of mortgages approved for house purchase edged up by 5% during March as the housing market returned to normal following the end of the stamp duty holiday, figures showed today.

A total of 34,905 loans were approved by the major banks during the month for people buying a new property, according to the British Bankers' Association.

The group pointed out that although the figure appeared subdued compared with the number of approvals seen during the final months of 2009, peaking at a 27-month high of 45,823 in December, it was still 20% ahead of the level reported for March last year.

It added that the distortions to the market caused by people buying lower-value properties rushing to complete transactions before the stamp duty holiday ended had now "worked through".

But Howard Archer, chief UK and European economist at IHS Global Insight, said the drop in mortgage approvals during the first quarter of 2010 indicated that the housing market had lost momentum, and this could not be attributed just to January's bad weather.

He said: "The muted BBA mortgage approvals data reinforce our suspicion that house prices will be erratic through 2010, and may very well be no better than flat over the year - particularly if more properties come on to the market, thereby pushing the supply/demand balance more towards buyers from sellers."

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The flatter trend in activity is broadly consistent with the feedback from the RICS housing market survey which is showing that new buyer inquiries have stabilised in recent months after growing strongly through the course of 2009.

"The lack of availability of mortgage finance remains a key issue for the market but this is now being compounded by uncertainty around the outcome of the General Election and the possible implications for the housing market."

The BBA also reported a further fall in net mortgage lending, which strips out redemptions and repayments, to £2.4 billion, the lowest level since July 2009, and down from the recent six-month average of £2.9 billion.

The group attributed the subdued figure to homeowners using their spare cash to reduce their mortgage debt, leading to stronger than usual repayments.

There was a slight pick-up in the number of people remortgaging during March, with approvals rising to 24,116, the highest level since July last year, while there was also a rise in the number of people releasing equity or taking out mortgages for buy-to-let properties.

Unsecured borrowing remained subdued, with consumers repaying £63 million more than they borrowed during the month, the 12th consecutive month during which outstanding debt levels have fallen.

Within the total, credit card borrowing rose by £148 million, despite repayments outstripping new spending, while lending through loans and overdrafts contracted by £211 million.

The amount people are saving also remained high, with consumers increasing their deposit levels by £4.73 billion in March, the highest level since September 2006.