U.K. December Mortgage Approvals Increase More Than Forecast

U.K. mortgage approvals rose more than economists forecast in December in a sign the Bank of England’s credit-boosting program is having an impact on home loans.

Lenders granted 55,785 mortgages, compared with 54,011 in November, the central bank said today. That’s the most since January and the highest for a December since 2009. Economists forecast 54,500 approvals, based on the median of 21 estimates in Bloomberg News survey. Net mortgage lending rose 1.04 billion pounds ($1.64 billion), the biggest increase since April.

Bank of England Governor Mervyn King said this month that credit conditions have eased and should improve further as the impact of the Funding for Lending Scheme “kicks in.” Property research company Hometrack Ltd. said on Jan. 28 that while the housing market had a “slow start” to 2013, it’s in “slightly better shape than at the start of the previous two years.”

“The U.K. mortgage market is gradually thawing and should continue to do so, in part because of the BOE’s FLS,” said Rob Wood, an economist at Berenberg Bank in London and a former Bank of England official. “We should see further improvements in coming months, but with the economy stagnant it may be some time before the U.K. gets back to more normal levels of housing-market activity.”

Separate BOE data today showed that overseas investors increased their holdings of U.K. government bonds for a sixth straight month in December. Non-residents bought 15.4 billion pounds more gilts than they sold, after increasing their holdings by 2.3 billion pounds in November. The December increase is the biggest since November 2011.

Lending Data

The pound was little changed against the dollar and traded at $1.5762 as of 10:48 a.m. London time, after falling to a five-month low of $1.5675 on Jan. 28. The yield on the benchmark 10-year U.K. government bond rose 2 basis points to 2.1 percent.

Hometrack said U.K. house prices stagnated in January after declining for the previous six months. Data last week showed Britain’s economy contracted 0.3 percent in the final quarter of 2012, raising the prospect of a triple-dip recession.

While mortgage approvals are increasing, they are still only about half the monthly average in the decade to 2007, when the financial crisis struck.

The Bank of England lending data showed that consumer credit increased 649 million pounds in December, with credit-card lending up 232 million pounds. Gross mortgage lending rose to 12.4 billion pounds, the most since March.

In a separate report, the BOE said that money supply rose 0.7 percent in December from the previous month. From a year earlier, M4 was down 1 percent.

“These data are consistent with a continued modest improvement in the credit picture,” said Jens Larsen, chief European economist at RBC Capital Markets in London. “But the data are hardly suggesting a credit boom.”

A measure of M4 money-supply growth the central bank uses to assess the effectiveness of its asset purchases slowed to a quarterly annualized 3.8 percent from 4.8 percent. The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit granters.

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