Mortgage Figures Plummet in July

by Mark Johnston

Mortgage lending in the United Kingdom plummeted in July as the housing market stayed within its slump showing no real signs of any improvement.

The Bank of England released figures which showed a subdued housing market with net lending of just over £85 million. The previous months figures of £518 million shows just how dreadful the lending market has become. July’s figures are the lowest monthly lending since record began back in 1993, seventeen years ago.

Its not all doom and gloom though, the number of approved mortgages for new house purchases increased from June to July but only edged ahead slightly from 48,562 to 48,722. During the housing boom the market was seeing over 100,000 new mortgages a month so last months figures are well behind at 50% but not far off of the 59,000 high in November last year.

Building societies were still struggling against their high street bank counterparts. Net lending by mutuals continued to stay in negative territory at minus £379 million but was an improvement of the same figures in June which were minus £432 million.

Adrian Coles, director general of the Building Societies Association (BSA) said: “There remain significant challenges such as heightened uncertainty about job prospects and household incomes, potentially limiting future demand. This could make it difficult to sustain the growth in activity.”

The Building Societies Association (BSA) went on to highlight that many of their members were withdrawing funds from their savings accounts. In June £0.3 billion was withdrawn in capital (not including interest) whilst in July that figure rocketed to £1.3 billion.

Mr Coles said: “The withdrawals may indicate the difficult economic conditions that households currently face. In addition, these withdrawals could have been intensified by competitive rates from National Savings & Investments, which subsequently withdrew products in the middle of July in the wake of considerable inflows.”

The Bank of England also noticed an increase in the number of home owners remortgaging compared to June. Borrowers switching to a new mortgage product climbed to 26,951 which was an increase on the previous average of the last six months. Unsecured loans also remained flat in July, the overall net lending only increased by £173 million, credit card borrowing increased by £213 million whilst loans and overdrafts reduced by £41 million.

Howard Archer, chief UK and European economist said: Although the Bank of England somewhat surprisingly reported that mortgage approvals edged up in July, the fact remains that they were still at a very low level and point to ongoing muted housing market activity. Housing market data and survey evidence has been consistently downbeat recently and this is no exception. Consequently, we continue to suspect that house prices will fall back over the latter months of 2010 and then very likely soften further in 2011.”

Mr Archer expected house prices to drop considerably by up to 3% in the second half of 2010 with further reductions of up to 5% in 2011.

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