(Adds economist comment, details.)

By Joe Parkinson
Of DOW JONES NEWSWIRES
     LONDON, Jul 23, 2008 (Dow Jones Commodities News Select via Comtex) --
U.K. mortgage approvals slumped to a fresh series low in June and net lending dropped sharply as the credit crunch continued to stifle demand for residential property, data from the British Bankers' Association showed Wednesday.
     Mortgage approvals for house purchases fell to 21,118 in June from a revised 27,449 in May, marking the lowest level since records began in 1997, the trade association said. Approvals were 67% weaker on the year and well below the average of the previous six months of 37,322.
     "Another record low number of mortgages approved by the banks for house purchases means that the whole market is likely to be at its least active since the early 1990s," David Dooks, the BBA's statistics director, said in a statement.
     The BBA said net mortgage lending tumbled to GBP3.8 billion from GBP4.5 billion in May, its weakest level since December 2001 and well below the average of GBP5.0 billion for the previous six months.
     Gross mortgage lending dropped to GBP15.1 billion from GBP15.9 billion in May, leaving it 23% weaker on the year.
     "The BBA data graphically highlight that housing market activity continues to be throttled by stretched affordability and tight lending conditions," said Howard Archer, Chief European and U.K. economist at Global Insight. Citi economist Ann O'Kelly also noted that the BBA figures only covered the major banks which had been gaining share recently.
     "The overall mortgage approvals figure may show an even weaker trend," she said.
     The data showed the number of loans approved for re-mortgaging nudged down to 59,637 from 62,637 in May, below the average of the previous six months of 68,420 and 13.1% weaker on the year.
     The BBA also reported that consumer credit grew GBP0.3 billion in June, down from a rise of GBP0.4 billion in May but in line with the average of the previous six months.
     New spending on credit cards eased to GBP7.3 billion from GBP7.5 billion in May, reflecting a drop in the number of purchases to its lowest level since July last year.
     "The pressure on household finances is being reflected in subdued consumer borrowing, with spending on cards lower than of late and borrowing on personal loans and overdrafts being comparatively weak," Dooks said.
     The U.K. housing market began to cool in the latter half of last year after the Bank of England raised interest rates five times between August 2006 and July 2007 and the global credit crisis hit the mortgage market.
     Even though the BOE has cut its main interest rate 75 basis points to 5.0% since December, lenders haven't reduced their mortgage rates in tandem due to the credit crisis.
     "Although a number of fixed rate mortgage rates have been trimmed over the last couple of weeks, it is too early to judge if this trend will continue and mortgage rates are still up significantly overall in recent months," Archer said.
     Most housing market indicators in recent months have shown that the reduction in housing loans has led to a sharp drop in sales of residential property and falling prices.
     Although the market has found some support from high employment and an imbalance between supply and demand for homes, higher fuel and food costs have squeezed disposable incomes.
     Web site: www.bba.org.uk
     -By Joe Parkinson, Dow Jones Newswires, +44 207 842 9291; joe.parkinson@dowjones.com
     Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=jYOm%2B39C6XAUTp7LlqNtgw%3D%3D. You can use this link on the day this article is published and the following day.
     Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=jYOm%2B39C6XAUTp7LlqNtgw%3D%3D. You can use this link on the day this article is published and the following day.
     (END) Dow Jones Newswires
     07-23-08 0719ET


Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry