by Mark Johnston
Weak mortgage figures released recently have increased concerns that the there may be a consumer spending collapse in the United Kingdom.The figures released by the Bank of England show weaking lending in the mortgage market. At the samer time the Office for National Statistics released data showed that the service sector is weakening. This sector accounts for three quarters of all output in the United Kingdom.
Recent reports have show a weak mortgage market where approvals have dropped to a six month low. Worries now grow that the UK may see another house price crash. Other reports showed that households in the United Kingdom were bracing themselves for troubled times are many rushed to pay off debt. Britains owe £1.3 trillion, but the data showed a slight reduction in this.
The economy is still feeling the strains of the credit cruch, although the crisis is over the government still face a massive deficit that will need to be filled. Consumers have held stronmg throughout the crisis and continued to spend which has fueled a 1.2pc recovery in the second quarter of this year, which is the fastest growth in almost ten years.
The worrying thing now is that consumers appear to be slowing down on their spending as fears of jobs losses and public sector cuts grow. Consumers paid back £120 million in loans during August and even though debt increased by £123 million, it was offset by £243 million being paid back.
Mortgage approvals totalled 47,372 during the month which was down from 48,346 last month because Banks and Building Societies tightened their lending criteria making it harder to find a loan for first time buyers. This was the 4th month that figures were down and is well below the 70 – 80,000 mortgages that analysts predicted the economy needed to stabilise the UK market.
Nationwide Building Society recorded a 2nd month that prices have fallen which raised concern within the market. Vicky Redwood, senior UK economist at Capital Economics, said: “The housing market still appears to be weakening.”
Hetal Mehta, an economist at Daiwa Capital Markets, said: “Continued weak data along these lines could persuade [the Bank]… that more quantitative easing is required.”
Economists are still predicting that interest rates will remain the same until at least the end of 2011. But Banks and Building Societies are still treading carefully when handing out loans. First time buyers need to have clean credit histories and large deposits before lenders will even consider them for a mortgage. Analyst are now looking to mortgage lenders to start pumping credit into the economy by lending more but this is very unlikely. Without extra credit in the system mortgage approvals will continue to stumble and even fall further. This will have a knock on effect on the UK housing market, creating a lack of first time buyers which will subsequently push the price of residential property down.
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