Independent UK: Mortgage approvals fall to near decade low as two more banks suspend lending

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Mortgage approvals fall to near decade low as two more banks suspend lending
By Sean Farrell
Thursday, 3 April 2008


Mortgage approvals fell close to a decade low in February as the property market slumped and cash-strapped banks reined in lending, Bank of England figures showed yesterday.

The figures were revealed as two more banks took action after First Direct suspended lending on Tuesday. The Co-Operative Bank has withdrawn its two-year mortgage deals, while Lehman Brothers, the US investment bank, stopped lending at its two British mortgage businesses, South Pac-ific and Preferred, last night.

Banks approved 73,000 loans for house purchases, down from 74,000 in January and 39 per cent lower than a year earlier. The figure is the second-lowest since records began in 1999. Mortgage lending was stable at £7.4bn, the equal-lowest figure since mid-2005 and well below the £8.2bn average for the previous six months.

The figures underlined the impact of the credit crunch on the housing market as banks ration lending and refuse to pass on interest rate cuts to customers. First Direct has withdrawn mortgages for new customers to cope with soaring demand after other lenders raised rates. The Bank of England has cut interest rates by a quarter point twice since December but banks and building societies have increased rates as they ration lending and seek higher returns for risk. Average interest rates on new fixed-rate mortgages rose to 5.88 per cent in February from 5.74 per cent in August.

The booming housing market has been a key driver of the economy in recent years as homeowners have taken confidence from rising prices and have released equity to pay for spending. The Bank of England's figures indicated that the shortage of mortgage finance may be forcing consumers to switch their borrowing from secured loans to more expensive overdrafts and credit cards.

Home equity withdrawal fell sharply to £7.3bn in the fourth quarter of 2007, the lowest since the first quarter of 2005 and down from a high of £13.7bn in the final quarter of 2006. In February, consumer credit jumped to £2.4bn from £0.9bn the previous month as personal loans and overdrafts recorded their biggest increase since 1989. .......(more)

The complete piece is at: http://www.independent.co.uk/news/business/news/mortgage-approvals-fall-to-near-decade-low-as-two-more-banks-suspend-lending-804062.html