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Big rise in mortgage lending backs up house prices growth

Figures show mortgage lending rose by £1.6bn in January, but many analysts see rises as a false dawn

Mortgage lending rose by £1.6bn in January, twice the average for the previous six months, according to figures released by the Bank of England.

The increase, together with data indicating house price growth published by the Land Registry, suggests the housing market may be in the early stages of recovery.

Howard Archer, chief UK economist for IHS Global Insight and one of the most bearish of the housing market analysts, said: “With housing market activity trending up modestly, and the economy showing signs of improvement, the downside risks to house prices are abating.”

The number of loan approvals for house purchase rose to 58,728, higher than the previous six-month average of 52,839, the BoE said. Both increases are likely to have been caused by a surge in first-time buyers trying to secure a home before stamp duty on cheaper properties is reintroduced on 25 March. In contrast, the number of remortgages approved fell to 31,952 in January compared with a previous six-month average of 33,039.

Archer said: “It is evident that mortgage approvals are currently being lifted by first-time buyers rushing to complete before the stamp duty concession ends in March. This may well provide some support to house prices in the near term, but it will likely be a temporary boost unless it has some lasting upward impact on housing market sentiment.

“Even so, we are trimming our forecast decline in house prices in 2012 to 3% from 5%. And we acknowledge that there is a growing possibility that house prices may not fall over 2012.”

The Land Registry has reported house prices increasing by an average of 1.1% in January in England and Wales. Nearly all areas saw an increase in property prices, with homes in London going up by 2.5%, north-east England by 2.2%, and the south-west by 1.6%. Only those in the north-west continued to fall – by 2.1% last month.

Last month the British Bankers’ Association said mortgage approvals were running at a two-year high, while the Council of Mortgage Lenders reported higher mortgage lending in January compared with the same month in 2011.

However, Richard Sexton, director of e.surv chartered surveyors, said that while a decrease in deposit requirements and greater availability of mortgages had helped the market, any recovery was still very tentative.

“Tighter funding conditions lurk on the horizon and will constrict lending in the medium term,” he said. “What is more, the current lending figures are being artificially swollen by first-time buyers rushing to beat the stamp duty deadline. So these figures don’t offer a true reflection of the state of the market, which is still riddled will all manner of ailments.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said January’s increase in lending did not signify a sustained recovery, and added that many prospective buyers were still struggling to borrow a mortgage.

“Approvals are still at roughly half the level recorded at the peak of the mortgage market, which puts the latest figures into perspective and suggests a housing market which is still very weak,” he said.

“It is still difficult to get a mortgage, with borrowers requiring a sizeable deposit in order to secure the best rates, and the troubles in the eurozone are a long way from being resolved. Those already on the housing ladder are also finding it difficult to move up on to the next rung because they have little or no equity in their homes, which is contributing to the overall weakness of the housing market.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds