Mortgage squeeze eases but horizon still cloudy

By Matt Falloon and Christina Fincher

LONDON (Reuters) - Signs of stabilisation in the housing market encouraged lenders to approve more mortgages in June, while the flow of lending to firms fell at a slower pace in May, Bank of England data showed on Monday.

There was also upbeat news from property website Rightmove which said there were growing signs that the past year's price falls have bottomed out, and from the Council of Mortgage Lenders, which said gross lending hit a six-month high in June.

However, mortgage lending is recovering from a very low base, and economists said the weakness of business lending and the biggest monthly contraction in the money supply since June 2005 did not bode well for a strong recovery.

"Altogether there are tentatively encouraging signs but it's difficult to be too optimistic," said Philip Shaw, chief economist at Investec.

The Bank of England's Trends in Lending report showed the country's top six banking groups approved 51,000 mortgages for house purchase last month, up from 45,000 in May. Gross mortgage lending picked up to 9.2 billion pounds from 8.6 billion pounds.

Net lending to businesses fell by 3.4 billion pounds in May after a 6 billion pound fall in April. That pushed the annual rate of growth down to 0.1 percent in May from 1.1 percent in April.

POLITICAL PRESSURE

A pick-up in lending is vital to recovery prospects after the economy contracted at its sharpest rate in the first quarter since 1979.