U.K. Mortgage Approvals Hit 2-Year High on Tax-Holiday Rush

U.K. mortgage approvals rose to the highest for more than two years in January as first-time buyers rushed to take advantage of a property-tax exemption before it ends next month.

Lenders granted 58,728 loans to buy homes, compared with 55,019 the previous month, the Bank of England said today in London. It was the fourth successive monthly increase and the biggest since June 2009.

The figures reflect the March 24 expiration of a two-year stamp-duty holiday for first-time buyers purchasing a home for less than 250,000 pounds ($396,000). Rising unemployment and weak consumer confidence may damp demand in coming months.

“Despite the recent pick up, housing market activity is still low compared to long-term norms,” said Howard Archer, an economist at IHS Global Insight in London. “And despite current signs of improvement, the economic fundamentals still look far from rosy for the housing market with unemployment high and likely to rise further, earnings growth muted, debt levels high and the outlook uncertain. In addition, credit conditions may well tighten, making it harder to get a mortgage.”

Approvals are running at little more than half the pace seen in 2007 (UKMSVTVX), the final year of Britain’s decade-long housing boom. Still, Archer forecast the decline in house prices this year may be limited to 3 percent, instead of the 5 percent previously predicted, and said there is a growing possibility values may not fall at all.

Home-Buying Costs

The pound rose against the dollar after today’s report and was trading at $1.5945 as of 11:18 a.m. in London, up 0.3 percent on the day. The yield on the benchmark 10-year government bond was up 1 basis point at 2.111 percent.

The ending of the stamp-duty holiday, introduced by the previous Labour government in 2010 in an effort to spur the property market, will add as much as 2,500 pounds to the cost of purchasing a home for many new buyers. David Cameron’s Conservative-led government scrapped the concession on the grounds it had not been as effective as expected.

Net mortgage lending was 1.61 billion pounds in January. Net consumer credit totaled 148 million pounds. Consumers repaid 3 million pounds of credit-card debt. Other loans, such as overdrafts and personal loans, rose 151 million pounds.

A measure of M4 money-supply the bank uses to assess the effectiveness of its asset purchases rose 4.2 percent in the three months through January on an annualized basis, today’s report said. That compares with a 0.9 percent drop in the three months through December. The gauge excludes intermediate other financial corporations -- financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit grantors.

Total M4 rose 1.6 percent in January from the previous month and was down 1.8 percent on the year, the Bank of England said.

To contact the reporter on this story: {Svenja O’Donnell} in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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