No end in sight to mortgage drought

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The Independent Online

Further falls in house prices are predicted following more weak mortgage lending numbers from the Bank of England. The Bank yesterday reported that mortgage approvals for house purchases fell back to a four-month low of 45,166 in April after having edged slightly higher to 47,145 in March.

The latest figure represents only the most slender of improvements from a recent low of 42,859, recorded in December. Unsecured consumer credit, including credit card balances, rose very slightly.

Some analysts pointed to the long bank holiday weekends and the royal wedding celebrations as reasons for a possible distortion in the numbers. Yet the trend remains worryingly weak. Some four years after the onset of the credit crunch, mortgage lending is nowhere near strong enough to maintain a normal, healthy market with even gently rising prices. Historically, monthly lending numbers of 70,000 to 90,000 are considered normal.

In cash terms the picture is equally downbeat. Net mortgage lending amounted to just £700m in April, up from £500m in March and very subdued compared with long-term norms and taking into account the still-elevated level of house values.

Observers in the real estate world suggest the only thing preventing prices falling much further is a shortage of "quality" stock of the kind being pursued by buyers, and the relative buoyancy of the London scene, which in turn is boosted by foreign money, especially at the top end.

Interest rate hikes by the end of the year, though modest, may also affect confidence and funding levels.

Howard Archer, the UK economist at Global Insight, said: "We believe that house prices are likely to fall by around 5 to 8 per cent from current levels."