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U.K. Mortgages Increase in Early Sign of BOE Credit-Plan Impact

U.K. mortgage approvals rose more than economists forecast in October in a sign the Bank of England’s new credit-boosting plan may be starting to buoy the market for home loans.

Lenders granted 52,982 mortgages compared with 50,415 in September, the Bank of England said late yesterday in London. While that’s the most since January, mortgage approvals are still only about half the monthly average of 103,000 in the decade to 2007 before the financial crisis struck.

Elevated funding costs have curbed U.K. lending through higher interest rates and limits on the supply of credit, constraining the economy’s recovery. The central bank started its Funding for Lending plan four months ago to remedy this, and Governor Mervyn King may address the issue and other headwinds to strengthening the banking system today when he publishes the BOE’s Financial Stability Report.

“Lending might start to rise again soon,” though “the recovery in lending is likely to remain sluggish,” Samuel Tombs, an economist at Capital Economics Ltd. in London, said in a research note. “Even if the supply of credit continues to improve, we expect demand for it to remain weak as households continue to focus on reducing their debts.”

Today’s report will include a statement from the central bank’s Financial Policy Committee, which held its quarterly meeting on Nov. 21, on its assessment of the stability of the banking system.

In August, the panel maintained its recommendations for banks to raise capital to bolster defenses against risks from the crisis in Europe. The panel is operating on an interim basis while the bill to enshrine its powers is debated in Parliament.

‘Clear Signs’

The FPC statement and the Financial Stability Report will be published at 10:30 a.m. in London, when King will begin the press conference.

Deputy Governor Charlie Bean said in an interview published yesterday that the FLS, which started in August, is showing “clear signs” of feeding through to households. Yesterday’s mortgage data were better than expected, after economists forecast 51,500 approvals, based on the median of 20 estimates in a Bloomberg News survey.

“This continued improvement suggests that the Funding for Lending Scheme may be feeding through into mortgage activity,” Chris Crowe, an economist at Barclays Plc, said in an e-mailed note. “However, any effect so far is small.”

The BOE report also showed that net mortgage lending rose 199 million pounds ($319 million) in October. Consumer credit fell 463 million pounds. Credit-card lending declined 132 million pounds.

The Land Registry said yesterday that house prices in England and Wales dropped 0.3 percent in October from the September, though they were up 1.1 percent from a year earlier.

“There’s reasonably clear signs” that the FLS has been “feeding through to some degree into lending to households, both in mortgage-loan rates but also in our credit conditions survey, where there’s been clear signs I think of increased availability,” Bean said. “Hopefully, we’ll discover more in the coming months about the kind of impact it’s having.”

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