U.K. Mortgage Approvals Rise to Highest Since 2008

Photographer: Nigel Roddis/Bloomberg

Hometrack said today U.K. house prices rose the most in more than six years this month and Prime Minister David Cameron brought forward the second phase of his “Help to Buy” mortgage plan yesterday, saying it will start three months earlier than planned. Close

Hometrack said today U.K. house prices rose the most in more than six years this month... Read More

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Photographer: Nigel Roddis/Bloomberg

Hometrack said today U.K. house prices rose the most in more than six years this month and Prime Minister David Cameron brought forward the second phase of his “Help to Buy” mortgage plan yesterday, saying it will start three months earlier than planned.

U.K. mortgage approvals rose to the highest in more than five years in August as the government prepares to accelerate a home-buying program that’s been criticized for potentially over-stimulating the market.

Lenders granted 62,226 mortgages, the most since February 2008, compared with a revised 60,914 the previous month, the Bank of England said in a monthly report in London today. The improvement in home-loan growth contrasts with business lending, which fell the most in eight months in August.

Hometrack said today house prices rose the most in more than six years this month and Prime Minister David Cameron yesterday brought forward by three months the second phase of his “Help to Buy” mortgage plan, saying it will start within days. The program has drawn criticism it may help fuel a property bubble, prompting the government last week to give the Bank of England the power to perform annual checks on it.

There is a “continued divergence across the household and the corporate sectors,” said Jens Larsen, chief European economist at RBC Capital Markets in London. “This picture will remain a worrying one for the Bank of England. While most commentators are focused on the risk of an overextended household sector, the bank is likely to concentrate its effort on improving credit to the corporate sector.”

The number of mortgage approvals exceeded the 61,500 figure that was the median estimate of 20 economists in a Bloomberg News survey. Net mortgage lending rose 974 million pounds ($1.57 billion) in August, the central bank said. Consumer credit increased 577 million pounds.

Company Lending

Business lending fell 3.8 billion pounds in August from July, the most since December and more than three times the average decline over the past six months. Lending is down 3.6 percent compared with a year earlier. For small- and medium-sized companies, lending has fallen 3.2 percent over the past year, according to the BOE.

“These figures are extremely disappointing, and show that Britain’s business finance system remains broken,” said Adam Marshall, director of policy at the British Chambers of Commerce. “While bigger and older companies can get finance when they need it, many young, dynamic, and fast-growing businesses are still frozen out.”

The pound rose 0.1 percent against the dollar today and was trading at $1.6161 as of 11:32 a.m. London time. The benchmark 10-year government bond yield was down 2 basis points at 2.69 percent.

Help to Buy

The BOE also said foreign investors sold a net 6 billion pounds of gilts in August, the most since June 2012. That followed a net purchase of 1.3 billion pounds in July. It said M4, a broad measure of money supply, rose 0.7 percent in August from July and increased 2.1 percent from a year earlier.

According to the Hometrack report, house prices in England and Wales rose 0.5 percent in September after a 0.4 percent gain in August. Annual price inflation accelerated to 2.4 percent. Prices rose in nine of 10 regions tracked by Hometrack. London led gains, with a 0.8 percent increase.

The first phase of Help to Buy -- interest-free loans for buyers of newly built homes -- began in April and has already contributed to the strongest housing market since the financial crisis. The second will provide government-guaranteed mortgages for buyers with a deposit of as little as 5 percent of the value of a home costing as much as 600,000 pounds.

With the plan facing criticism, Chancellor of the Exchequer George Osborne has downplayed risks of a property bubble, saying the housing market outside London remains weak. While the BOE has said property activity remains below its historic average, it will be “vigilant” to any risks.

“There is a mounting danger that house prices could really take off,” said Howard Archer, an economist at IHS Global Insight in London. “It is therefore of vital importance that policy makers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced.”

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

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

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