LONDON (Reuters) - British mortgage approvals hit their highest level in more than five years last month in a revival that is likely to get another boost from a government scheme due to start next month.
Prime Minister David Cameron at the weekend unexpectedly brought forward the launch of a state-supported mortgage guarantee initiative that critics say risks stoking a housing bubble.
Mortgage deals for house purchase rose surprisingly strongly in August to stand at 62,226, the highest since February 2008 and up from 60,914 in July, Bank of England data showed on Monday.
The housing market - a national obsession in Britain - has shown increasing signs of recovery, supported by a healing economy and official programmes to bolster lending to consumers and firms.
Stronger demand is being reflected in rising prices. House prices in England and Wales posted their biggest month-on-month gain in more than six years in September, a survey showed earlier on Monday.
The new mortgage guarantee scheme, part of the broader Help to Buy programme, which was originally set for launch in January, should boost demand further.
"The government's announcement that the Help to Buy mortgage indemnity scheme will start three months early will probably give further upward momentum in coming months," said BNP Paribas economist David Tinsley.
Monthly mortgage approvals could reach around 70,000-75,000 by the end of the year, he said. That compares with a monthly average of around 90,000 before the 2008 financial crisis.
Aiming to help people unable to put up a sufficient mortgage deposit, the government will provide 12 billion pounds in guarantees to encourage lenders to extend mortgages of up to 95 percent of the value of properties being bought.
Cameron said state-backed banks Lloyds and Royal Bank of Scotland would take part in the programme. Britain's other major banks have said they are considering whether to join.
Last week, Chancellor George Osborne asked Britain's central bank to play a bigger role in making sure that Help to Buy does not fuel a new property boom.
The Bank has so far said that it does not see signs of a bubble in the housing market because activity remains below its levels before the 2008-09 recession.
While consumer spending is driving Britain's economic growth, business lending remains weak. It fell by 3.76 billion pounds in August, the largest fall since December last year, despite the authorities' year-old Funding for Lending Scheme, which aims to channel more credit to companies.
However, the outlook for corporate lending is brighter, economists say, noting a recent turnaround in the economy.
A survey by professional services firm Deloitte found that big companies in Britain rank expansion as their top priority for the first time in 18 months and plan to up investment.
Interest rates on new business loans edged up in August, the BoE data showed.
The central bank has said it is watching out to make sure financial conditions - including interest rates - do not tighten and smother Britain's nascent economic recovery.
Editing by Susan Fenton