New mortgages hit highest level for three years

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The Independent Online

The number of new mortgages approved last month unexpectedly rose to its highest level for three years, according to figures from the Bank of England that confirmed the strength of the housing market.

Mortgage approvals - which tend to point to the direction of house prices over the coming months - rose to 128,000 in October.

This was an increase from September's 127,000, which was itself revised up, and the highest figure since December 2003. The City had expected a fall to 124,000 following the increase in interest rates in August.

"The overall pick-up in approvals since the August rate hike has been a surprise," said Allan Monks, an economist at JP Morgan, who said it pointed to annual house-price inflation hitting 16 per cent in April.

However economists warned that the "well- telegraphed" rise in base rates to 5.0 per cent in November had probably encouraged some buyers to rush to lock in a better deal.

"It could be that some people were seeking to tie up mortgage deals before interest rates moved higher still in November," said Howard Archer, chief UK economist at Global Insight.

The latest figures contrasted with a recent survey from the Royal Institution of Chartered Surveyors showing a drop in new- buyer enquiries in October. "It remains to be seen whether mortgage approvals will remain at such buoyant levels," Mr Archer said.

The number of people remortgaging their home also increased during the month, up from 95,000 in September to 101,000.

The volume of mortgage loans paid over in October also posted a strong increase, rising by 9.3 per cent to £9.81bn from £8.98bn in October.

Kelvin Davidson, property economist at Capital Economics, said lenders were likely to pass on the full impact of November's quarter-point rise in mortgage rates.

"Along with the further [rate] increase that we expect in the new year it is likely that housing market activity levels will cool as we move into 2007," he said.

The continual rise in house prices is putting property increasingly out of reach of first-time buyers and will act as a drag on the market, he added.

Unsecured lending - credit cards, bank loans and hire purchase deals - rose by £1.11bn in October, slightly more than the £959m increase in the month before.

But that still took the annual rate of increase to 6.2 per cent, the lowest since comparable records began in 1994.