The property market is rapidly cooling, with the credit squeeze beginning to take its toll on British housebuyers, according to the British Bankers' Association.
The BBA says that in November, the number of mortgages approved for UK homebuyers fell by more than 40 per cent compared with a year earlier, though they were just above the nadir reached in October (itself the lowest rate since the BBA series started in 1997), and healthier than some analysts feared.
Partly reflecting the increase in house prices over the past 12 months, the value of gross mortgage lending was less badly affected, but still down 16.9 per cent on a year earlier. Net underlying mortgage lending continued to soften, posting a rise of £4.3bn on the month, down from a £4.8bn increase in October and well below the previous six-month average rise of £5.5bn.
Meanwhile, the Institute of Directors predicts that the economy is entering a period of "sticky-flation", with a sharp slowdown in GDP growth against a backdrop of stubborn retail inflation, with "flat/falling house prices". The IoD believes GDP growth will almost halve to 1.7 per cent next year, from 3 per cent this year, and somewhat below the Treasury's estimate for growth of 2.0 to 2.5 per cent.
The markets took the numbers as increasing the likelihood of interest rate cuts by the Bank of England. On the back of such expectations, the pound fell to a new low against the euro of 0.7317p during trading yesterday.
The BBA's numbers, representing the main high street banks, echo last week's weak lending data from the Building Societies' Association. The BBA also detected signs that the credit crunch had begun to make its presence felt in the residential real estate market. Bank lending to companies is running lower than the recent trend, slightly at odds with past survey evidence from the Bank of England and the CBI which suggested that the non-bank corporate sector had weathered the credit squeeze relatively well. Larger UK companies usually have sufficient resources of their own to fund investment plans and working capital; the squeeze will probably be felt most acutely by smaller concerns and those with weaker credit ratings. However, it is the indications for the future course of the housing market that make the BBA statistics particularly ominous.
"Mortgage activity is notably lower than this time last year and, as we expected, lending has begun to slow down," said David Dooks, the director of statistics for the BBA. "Judging by the significantly lower number of mortgage approvals in October and November -- partly resulting from lower demand, partly from tighter supply -- the market is likely to continue slowing in the coming months." Nationwide, Halifax and the Council for Mortgage Lenders predict house price growth at or close to zero for 2008.
Even so, the BBA reported that the consumer's appetite for debt-driven spending, even before December's cut in base rates and the pre-Christmas sales, remains strong. Growth in net unsecured borrowing has firmed a little; taking personal loans, credit cards and overdrafts together, the £528bn increase in such lending in November was the second largest this year. Bank of England figures on home equity withdrawal also showed that consumers were continuing to use the increased value of their homes and low interest rates (by historic standards) to maintain their standard of living. The Bank reported its estimate of housing equity withdrawal at £10.5bn in the third quarter of this year, a small gain on the outcome in the second quarter although, as with the mortgage data, down on the same period in 2006.