(LONDON) UK mortgage approvals unexpectedly fell to a nine-month low in February, adding to signs that credit constraints are impeding the housing market's recovery.
Lenders granted 47,094 loans to buy homes, compared with 48,099 in January, the Bank of England (BOE) said yesterday in London. That was the lowest since May. The median of 19 economist forecasts in a Bloomberg News survey was for 48,400.
Britain's property market is showing signs of faltering as the economy struggles to cement its recovery from the worst recession since World War II.
Prime Minister Gordon Brown's Labour Party, which faces an election by June, last week eliminated a tax for most first-time home buyers in a bid to unblock strains in the market.
'This reinforces our belief that house prices will be no more than flat this year,' said Howard Archer, an economist at IHS Global Insight in London.
'The government's stamp-duty holiday will probably give the market a boost but the economic fundamentals of the housing market are pretty poor at the moment.'
Yesterday's mortgage approval figure compares with a low of 26,600 at the trough of the financial crisis in November 2008, though it's still less than half the 120,000 reading at the peak of the boom.
Recent data on house prices have been mixed. Hometrack Ltd said on March 23 prices rose 0.3 per cent this month from February, while Lloyds Banking Group plc's Halifax division says the average cost of a home fell 1.5 per cent last month.
Mr Brown's government, which is narrowing the gap in opinion polls with the opposition Conservatives, is trying to help potential homebuyers in the run-up to the election.
Chancellor of the Exchequer Alistair Darling last week scrapped a tax on house purchases for first-time buyers spending £250,000 (S$524,273) or less. The tax previously started at one per cent for properties costing more than £125,000.
Mr Darling said the policy will mean nine in 10 first-time buyers will avoid the levy.
A ComRes Ltd poll conducted after Mr Darling ended his Budget speech on March 24 showed 33 per cent of respondents now trust him and Mr Brown to run the economy, compared to 27 per cent favouring the opposition Conservatives.
The BOE said net mortgage lending rose £1.6 billion, the most since December 2008.
Yesterday's report showed that households added to their unsecured debts in February. Net consumer credit rose by £528 million. Economists predicted a £400 million increase, according to the median of 15 forecasts in a Bloomberg survey.
Credit-card lending increased £374 million, while personal loans and overdrafts climbed by £154 million. -- Bloomberg
Source: Business Times, 30 Mar 2010