Bank of England spots further signs of recovery

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The number and value of mortgages approvals continued to rise in May, albeit by a historically small amount, the Bank of England has announced.

According to monthly lending figures produced by the Bank, the total number of new mortgages approved in May rose to 43,414, up from 43,191 in April.

And while these figures, alongside the value of new mortgages, are at severely depressed levels, this is the fourth consecutive month that the Bank of England has recorded an improvement in home loan lending figures.

The findings have been backed up by further research from the institution published today (July 2nd) which showed that banks have begun to lend more freely.

Financial institutions responding to the quarterly credit conditions survey carried out by the Bank said that they had marginally increased the amount of money handed out to mortgage borrowers in the three months to June as banks became less wary of lending to each other.

However, the banks maintained their cautious approach to unsecured lending such as personal loans and credit cards during the second quarter and expected that they would continue to tighten lending criteria over the next three months.

Improved lending, stronger demand and higher prices

Other headline findings from the Bank of England included the confirmation that banks are seeing a strengthening in demand for new mortgages, indicating that consumers are keen to return to the market, while demand for remortgaging lending fell further in the second quarter.

Elsewhere, Nationwide has also published figures pointing to a slight recovery in demand for properties and mortgages, with house prices rising 1.1 per cent in the second quarter of 2009.

The latest figures from the bank show that the average house price in the UK now stands at £154,066, a rise that chief economist Martin Gahbauer described as a "significant improvement".

He added that house prices rose broadly across the whole of England, with London, the south-east and East Anglia recording the highest growth.

"Following five consecutive quarter-on-quarter declines, house prices in Greater London rose by a seasonally adjusted 4.8 per cent in the second quarter of 2009," he said.

Looking to the north, Mr Gahbauer conceded that the second quarter had been "generally less impressive", although Yorkshire and Humberside and the East Midlands did see a slight improvement in house prices.

North of the border, prices remained flat during the three-month period, while Northern Ireland registered the sharpest fall of any UK region, with prices plunging a further 7.7 per cent.

In Wales meanwhile, prices jumped 7.7 per cent in the second quarter, the largest price increase of any region.

"However, short-term price movements in Wales have historically been very volatile and the strong increase this quarter should be seen in the context of the very large 8.6 per cent fall in the first three months of the year," Mr Gabhauer concluded.

Green shoots or wilted roots?

Taken together, the figures from the Bank of England and Nationwide have spurred some experts to declare that the UK housing market is seeing the green roots of recovery, although most temper their optimism with the clarification that there is still a very long way to go before the market will return to the kind of health seen in 2007 or earlier.

Speaking to the BBC, Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said that it is important to remember that the number of mortgage approvals only rose modestly in May, demonstrating the continued fragility of the property market.

"While mortgage approvals by banks actually rose by around 2,500, loans from building societies and other specialist lenders both fell during the month," he added.

Adrian Coles, the director general of the Building Societies Association, which described mortgage lending in May among its members as "depressed", said that building societies are unable to offer mortgages in the same way that banks which have received protection from the government can.

"These pressures are exacerbated by the current low interest rate environment; there is evidence that households are looking to repay debt rather than save," he added.

This, in turn, may result in fewer first-time buyers entering the market as they look to clear up their bank balances before building up a deposit to put on a new property.

And with an absence of first-time buyers freeing up the market and breaking up sales chains, it is likely that figures for new lending and house prices will remain persistently weak for many months to come.

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