Mortgage lending slides, but car production leaps

The number of mortgages approved for house purchase have fallen by 7%, but there has been a 37% jump in UK car production.

The number of MORTGAGES approved for house purchase slumped to a 16-month low during August as activity in the housing market continued to decline, figures showed today.

Only 31,767 loans were approved for people buying a property during the month, the lowest level since April last year, according to the British Bankers' Association.

It was the third consecutive month during which mortgage approvals fell, despite the fact that the property market usually sees a bounce in activity during the summer months.

The number of loans approved for people buying a home has been running below 36,000, a level economists consider to be consistent with house price falls, for most of this year.

David Dooks, BBA director of statistics, said: "Demand for mortgages continues to be weak despite more properties coming on to the market.

"Even with stable or falling house prices, the current economic climate makes it unlikely that demand will pick up in the near future."

Today's figures are the latest in a run of gloomy data on the housing market, with Nationwide reporting price falls of 0.9% in August.

The Council of Mortgage Lenders said earlier this week that lending in August fell to its lowest level for the month for a decade, while HM Revenue & Customs reported a fall in the number of homes changing hands during the month.

The drop in activity since the beginning of this year has prompted some economists to predict the market could be heading for a double dip.

But others have said recent falls in house prices are not unhealthy as the recovery in the property market had got ahead of improvements in the wider economy.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The BBA data showing mortgage approvals sinking to a 16-month low in August heightens our belief that house prices will trend down over the coming months.

"We suspect that house prices will fall by around 10% between now and the end of 2011. In our view, the housing market really has not got much going for it at the moment, apart from low mortgage rates - and that is if you can get a mortgage."

But there was some slightly better news in the BBA figures, with net lending, which strips out redemptions and repayments, rising to £2.55 billion - its highest level since February. However, the figure was well down on the £3.35 billion advanced in August 2009.

The BBA attributed the ongoing weakness in net lending to the fact that homeowners were focusing on paying down their mortgage.

Credit card repayments were higher than new spending during the month, but once interest and charges were factored in, outstanding plastic debt rose by £172 million.

Borrowing through loans and overdrafts contracted for the 16th consecutive month, with consumers repaying £187 million more than they borrowed.

Savings levels bounced back in August to reach their highest level since March, when figures are often boosted by the approaching end of the tax year.

The amount consumers deposited rose by £2.19 billion, up from an increase of £514 million in July.

Meanwhile figures showed today that almost 78,000 CARS were built in the UK last month, an increase of 37% compared with August last year.

The Society of Motor Manufacturers and Traders reported healthy production figures showing a 41% increase over the year to date.

Commercial vehicle output increased by 22% in August compared with last year and rose by 41% in the first eight months, while engine production was up 15% for the month and 27% for the year to-date.

"UK vehicle and engine production continues to lead a strong manufacturing recovery," said SMMT chief executive Paul Everitt.

"The UK is an important part of the global automotive industry, exporting cars, commercial vehicles and engines to markets around the world.

"There are still significant challenges ahead and Government must do all it can to encourage continued international investment in UK-based research and development, skills, plant and machinery."

A total of 77,882 cars were built last month, taking the total for the year so far to 812,687, with around 57,000 of August's production exported.

Mr Everitt said the figures showed continued improvement in car production, although it was still behind the pre-recession levels of 2006-07.

There had been concern that the industry would be hit by the ending of the car scrappage scheme earlier this year, but the sector was moving forward quite strongly, he said.

Sales were increasing in countries such as the United States, China and India, while domestic demand for new cars was holding up, said the SMMT.

"We are moving in the right direction and also seeing more vehicle manufacturers wanting to increase the sourcing of parts in the UK," said Mr Everitt.

Exports increased by 51% last month, accounting for almost three-quarters of the total production, today's figures showed.