Mortgage approval figures point to cooling of housing boom

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Growth in mortgage lending slowed last month, according to figures from the major high street banks that suggest the recent boom in activity is coming to an end.

The number of new mortgage approvals in February were 22 per cent higher than a year ago, a slowdown from January's 32 per cent rise, the British Bankers' Association said.

Actual lending came in at £4.4bn, down from £4.6bn in January and below the average increase of £4.8bn clocked up after the previous six months.

"While the lending and approval data are still relatively healthy overall, there are hints that housing activity could be starting to lose momentum after several months of improvement," Howard Archer, the chief UK economist at Global Insight, said.

The BBA said activity in the housing market was "by no means" approaching the mini-boom levels seen in 2004.

The Bank of England will publish the final version of February's mortgage lending data tomorrow and some analysts said the BBA numbers point to a drop in approvals from January's 122,000.

Kelvin Davidson, a property economist at Capital Economics, said a drop would add to a "weakening picture" of mortgage demand. "This provides further evidence of our view that the downside risks to the housing market outlook have not entirely evaporated," he said.

Although all indicators have pointed to robust growth since autumn last year, mortgage approvals point to the house prices in two to three month's time.

There was further evidence of the strength of the market so far this year from the report by Hometrack, the analysts, over the weekend, showing that the price of the average home rose 0.5 per cent this month.

The increase was driven by a 1.1 per cent leap in London prices, echoing a raft of surveys from estate agents pointing to a return of speculators and sealed bids to the capital markets.

Meanwhile a paper by three Oxford academics published yesterday claimed there was no evidence of a recent bubble in the UK housing market.

They examined regional housing markets and looked at a range of issues including changes to the lending market, housebuilding, population change, and interest rates.

They found "an element" of bubble characteristics in the late 1980s boom although it said much of the behaviour was a "rational response" to the pre-announced abolition of mortgage tax relief for couples.

But looking at the 1997to 2003 they concluded: "The question 'was there a recent house price bubble in the UK' appears to have the answer 'no'.

"It would be paradoxical if one of the factors preventing a house price bubble was the publicity given to those warning of the risk of the bubble collapsing."

They also ran a simulation for the 2004 to 2010 period and found that only "very negative" economic shocks would lead to "significant" falls in house prices.