Tuesday, September 2, 2008

UK Mortgage Approvals Fall To Lowest Since 1999

Source : The Business Times, September 2, 2008

(LONDON) UK mortgage approvals fell for a 12th month to the lowest since at least 1999 in July as financial institutions curbed lending and the property slump deepened.

Banks granted 33,000 loans for house purchase, compared with 35,000 in June and the fewest since comparable data began nine years ago, the Bank of England (BOE) said in London yesterday. Economists predicted 35,000, according to the median of 27 estimates in a Bloomberg News survey.

Home-loan approvals are at less than a third of the level a year ago as Britain teeters on the brink of a recession. BOE policy makers will probably keep the key interest rate at 5 per cent this week as they battle the fastest inflation in more than a decade while Prime Minister Gordon Brown announces a package of measures to shore up the economy.

'The data are still showing a very gloomy picture,' said Matthew Sharratt, an economist at Bank of America Corp in London. 'There's no signs of a bottoming out in the housing market.'

The value of home loans rose to £3.23 billion (S$8.3 billion) in July from £3.14 billion in June. The figure is down from £9.35 billion in July 2007.

Hometrack Ltd said yesterday the average cost of a residential property in England and Wales slipped 5.3 per cent from a year earlier in August. A recovery in prices is 'still some way off', said Richard Donnell, director of research.

The slump has led to a collapse in support for Mr Brown since he took over from Tony Blair 15 months ago and reduced the popularity of the ruling Labour Party to the lowest since it took office. Labour trailed behind the opposition Conservative Party, led by David Cameron, by 20 percentage points in recent opinion polls.

Mr Brown will hand UK local government authorities money to buy homes, a person familiar with the plan said last week, as part of a package to prevent the economy entering its first recession since 1991. Chancellor of the Exchequer Alistair Darling said in a Guardian newspaper interview on Aug 30 that the UK is facing 'arguably the worst' economic crisis for the last 60 years.

Financial institutions are still reluctant to lend to one another almost a year after housing market turmoil in the US led to a freeze in interbank lending. Bank losses from the collapse of the US sub-prime mortgage market now exceed US$500 billion.

UK gross domestic product stagnated in the second quarter, ending the nation's longest stretch of economic expansion in more than a century.

Risks of a deeper slump in growth and in house prices prompted policy maker David Blanchflower to call for a lower in benchmark borrowing costs.

He said on Aug 28 that his prediction of a 30 per cent drop in house prices may now be 'a fairly optimistic number', and that 'we need to see a substantial fall and probably quite quickly', in rates.

A majority of the nine-member rate-setting panel probably won't heed his call at their Sept 5 decision as inflation accelerates. Record commodity prices helped push the consumer price index to 4.4 per cent in July, more than double the 2 per cent target.

UK inflation expectations for the year ahead are also feeding risks of further price gains. Consumers' forecasts rose to 4.4 per cent in August, Citigroup Inc said on Aug 29, citing a poll by YouGov plc.

All 61 economists in a Bloomberg News survey expect the bank to leave the key rate at 5 per cent for a fifth month. - Bloomberg

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