U.K. mortgage approvals rose to the highest in 5 1/2 years in September, adding to signs of a strengthening property market that’s being stoked by government incentives.
Lenders granted 66,735 mortgages, the most since February 2008, compared with a revised 63,396 the previous month, the Bank of England said in a report in London today. Home-loan rates fell to a record low, and gross mortgage lending was 15.6 billion pounds ($25 billion), the highest since October 2008.
Hometrack Ltd. said yesterday that house prices in England and Wales rose 3.1 percent in October from a year earlier, the biggest gain since 2007. Chancellor of the Exchequer George Osborne’s acceleration of his Help to Buy program this month is boosting real-estate activity and Hometrack said the gap between supply and demand is widening.
“The housing market is surging as low interest rates and rising confidence feed buyer interest,” said Rob Wood, an economist at Berenberg Bank in London. “It is early days, as real house prices and transactions are still below their pre-crisis levels. But the key issue is not where prices are today, rather it is where they will be in a couple of years. Prices and activity are rising fast.”
The September mortgage approvals figure exceeded economists’ forecasts. They predicted an increase to 66,000, based on the median of 23 estimates in a Bloomberg News survey. Net mortgage lending rose 1.03 billion pounds last month and consumer credit increased 864 million pounds, the BOE said.
The BOE also reported that mortgage interest rates fell to a record low in September. The effective interest rate on all outstanding home loans fell 2 basis points to 3.3 percent. On new loans, the rate dropped 7 basis points to 3.08 percent.
Former Financial Services Authority Chairman Adair Turner has added his voice the critics of Osborne’s housing program, saying in an interview published yesterday that Britain risks repeating the debt-fueled binge that led to the credit crisis.
Despite government pledges to rebalance the economy away from consumer spending and the housing market, “we now seem to be having a recovery which is heavily focused on that favorite old British activity, which is another house price boom,” Turner said. “That’s not a sustainable, balanced economy.”
While mortgage lending is rising, approvals remain below their average of about 104,000 in the decade through 2007. BOE policy makers have cited that figure as they downplayed the risks from the housing market. Jon Cunliffe, who will join the BOE as deputy governor for financial stability next month, said on Oct. 15 that housing market is not overheating.
Separately, the BOE said business lending rose 720 million pounds in September from August. While that compares with an average decline of 1.5 billion pounds over the previous six months, lending was still down 3.2 percent from the same month a year earlier, according to the data.
For small and medium-sized companies, lending fell 383 million pounds on the month and was down 3.2 percent versus a year earlier.
The pound remained lower against the dollar after the data and was trading at $1.6091 as of 10:28 a.m. London time, down 0.3 percent on the day. The yield on the benchmark 10-year U.K. government bond fell 1 basis point to 2.59 percent.
The BOE also said foreign investors bought a net 2.48 billion pounds of gilts in September. That followed a net sale of 6 billion pounds in August. It said M4, a broad measure of money supply, rose 0.6 percent in September from August and 2.6 percent from a year earlier.
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