U.K. Mortgage Approvals Decline to Eight-Month Low, BOE Says

U.K. mortgage approvals fell more than economists forecast in February to the lowest in eight months as economic uncertainty hurt demand for property and banks tightened lending conditions.

Lenders granted 48,986 loans to buy homes, compared with a revised 57,899 the previous month, the Bank of England said today in London. Economists forecast a decline to 57,200 from an initially reported 58,728, based on the median forecast of 21 economists in Bloomberg survey. A separate report from the central bank said lenders expect mortgage availability to decline “slightly” in the second quarter.

Bank of England Governor Mervyn King said earlier this week that the financial crisis hasn’t gone away as banks continue to work to shore up their balance sheets amid debt turmoil in Europe. U.K. home prices fell the most in two years in March, data from Nationwide Building Society today showed, and the housing market may come under further pressure as rising unemployment undermines consumer confidence.

“Households are still being heavily squeezed and inflation is running way ahead of wage growth,” Victoria Cadman, an economist at Investec Securities in London, said before the reports. “There’s no real impetus for them to turn around and up their demand for mortgages, so it’s difficult to see any step change coming through the next few months.”

Net mortgage lending rose by 1.2 billion pounds ($1.9 billion) in February from January, while consumer credit rose 381 million pounds, the central bank said.

Services Growth

The pound remained higher against the dollar after the data were published. It traded at $1.5907 as of 9:36 a.m. in London, up 0.1 percent from yesterday.

In a separate report today, the U.K. statistics office said services industries grew 0.2 percent in January, adding to evidence that the economy gained momentum in the first quarter. The increase was led by distribution, hotels, and restaurants as well as transport, storage and communications. Output gained 1.8 percent from a year earlier. The sector accounts for 76 percent of the British economy.

Nationwide said in its report that British house values fell 1 percent in March from February and were 0.9 percent lower from a year earlier.

Part of the decline in mortgage approvals in February may reflect the end of an exemption for first-time homebuyers from a tax on some house purchases. While the tax holiday ended this month, Cadman said some buyers may have sought mortgages early to ensure they beat the deadline.

Credit Conditions

In its quarterly Credit Conditions survey, the Bank of England said the decline in availability of mortgages in the second quarter will impact both high and low loan-to-value ratio borrowers. The predicted drop reflects “the tightening in wholesale funding conditions since mid 2011 and bank balance- sheet pressures,” the central bank said.

King said on March 27 that “the financial sector is not back to normal” and “it will take a number of years before we are through all this.”

Over the past three months, credit-scoring criteria had been tightened, lenders said in the Bank of England survey. Losses given defaults on mortgages fell slightly in the current quarter, but are expected to increase “significantly” in the next quarter, according to the report.

On corporate loans, the Bank of England said availability was “broadly unchanged” in the first quarter and is expected to remain unchanged over the next three months.

A measure of M4 money-supply growth the bank uses to assess the effectiveness of its asset purchases slowed to 2.5 percent in the three months through February on an annualized basis from 3.9 percent in the period through January, the central bank said. The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non- bank credit grantors.

Total M4 (UKMSM41M) fell 1.9 percent in February from the previous month and was down 3.4 percent from a year earlier.

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

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

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