Surge in home loans points to housing revival

The number of mortgage approvals bounced back last month, denting speculation that the housing market was running out of steam, figures showed yesterday.

The British Bankers' Association said banks approved 81,300 home loans in May compared with 64,700 in the previous month, which was distorted by the timing of Easter.

Approvals - loans agreed but not completed - are seen as a good pointer towards house prices in a couple of months' time.

Meanwhile underlying mortgage lending rose to a two-year high of £5.6bn in May. "The robust mortgage lending and approvals data indicate that the housing market upturn is still alive and kicking," said Howard Archer, the chief UK economist at Global Insight. "Following some recent signs it could be starting to falter, this suggests house prices will see further strength in the near term at least."

Other economists said that the rebound had still left mortgage activity on a downward trend that began at the start of the year. Peter Newland, a UK economist at Lehman Brothers, said: "Further out we expect this softening trend in mortgage activity to continue, putting less upward pressure on house price inflation."

The figures appear to contradict the message from a raft of surveys pointing to a slowdown after a red-hot eight months of activity, particularly in London. Mortgage lenders Halifax and Nationwide showed house prices rising by just 0.1 and 0.2 per cent respectively in May, while the Bank of England has reported a fall in mortgage approvals during two of the previous four months.

At the weekend, the property website propertyfinder.com said buyers knocked 6 per cent off average asking prices this month. While consumers appeared to remain happy to take on mortgage debt, their appetite for borrowing through credit cards continued to show signs of waning.

People spent a total of £7.68bn on their plastic during May, 16 per cent more than in April.

But they actually repaid more than they spent, leading to outstanding credit card debt falling by £251m during the month. It is the third time this year that repayments have outstripped new spending.

Meanwhile Primelocation, an estate agents' internet portal, said the number of prime London houses for sale has fallen by 27 per cent over the past 12 months, pushing prices in Central London up by 10.2 per cent.