British Banks Approve Fewer Mortgages Than Forecast as Demand Diminishes

U.K. banks approved fewer mortgages than economists forecast in June as tighter lending conditions and weaker confidence curbed housing demand.

Lenders granted 47,643 loans to buy homes, compared with 49,461 in May, the Bank of England said today in London. That’s the lowest in four months and below the 48,800 median forecast of 18 economists in Bloomberg News survey.

The U.K. housing recovery has shown signs of losing steam as consumers brace themselves for the government’s budget squeeze to reduce the record deficit. Nationwide Building Society said today that house prices fell in July for the first time in five months and Hometrack Ltd. said this week that the market is at a “turning point.”

Recent data “are basically saying the party is over for the U.K. housing market,” said Alan Clarke, an economist at BNP Paribas in London. With the tightening in fiscal policy and planned public-sector job cuts, “one can understand why households are not falling over themselves to go out and move house,” he said.

The pound was little changed against the dollar after the report and was up 0.3 percent from yesterday to $1.5647 as of 10:32 a.m. in London.

Inflation

Net mortgage lending was 665 million pounds ($1.04 billion) in June, compared with 838 million pounds in May, the Bank of England said. Gross home loans totalled 11.5 billion pounds.

“The gradual improvement in credit conditions that was evident earlier in the year seems to have come to a halt in recent months,” Bank of England Governor Mervyn King told lawmakers yesterday.

Consumers reduced their unsecured debts by 98 million pounds in June as net lending on personal loans and overdrafts dropped by 244 million pounds, the central bank said. Net credit-card spending rose 146 million pounds.

It also said that a measure of M4 money supply that it uses to assess the effectiveness of its asset purchases fell in June. The rate of growth eased to an annualized 6 percent in the three months through June, the weakest since March, from 8.9 percent.

The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non- bank credit grantors.

Interest-Rate Debate

Today’s report adds to evidence that the housing-market recovery is fading as policy makers debate the timing of interest-rate increases. Nationwide, the U.K.’s biggest customer-owned lender, said today that home prices fell 0.5 percent this month to 169,347 pounds. The lender’s gauge of consumer confidence fell to the lowest in a year in June.

Bank of England policy maker Andrew Sentance has voted twice in the last two months for the central bank to begin raising its benchmark interest rate to guard against “resilient” inflation. Others, including King, say economic growth may be hampered by the domestic budget cuts and the debt crisis in the euro area, Britain’s biggest export market.

“There must be a sense that the rally in house prices that we’ve seen over the last year was built on some pretty shaky foundations,” said Ed Stansfield, chief property economist at Capital Economics Ltd. “The market is extremely vulnerable to falling back over the remainder of this year.”

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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