June 27, 2012 / 10:23 AM / 8 years ago

Net mortgage loans post first fall since 1997

LONDON (Reuters) - Mortgage approvals by high street banks fell to their lowest level in over a year in May and households continued to pay down debt, the British Bankers’ Association said, in a sign that the housing market remains in the doldrums.

A sold sign hangs from a for sale board on a housing development in Manchester, June 7, 2011. REUTERS/Phil Noble

Mortgage approvals fell more than 3 percent from a year ago to 30,238 and net mortgage lending dipped by 73 million pounds from April - its first fall since records began in 1997 as repayments outpaced stable gross lending, the BBA said on Wednesday.

The numbers underlined the weakness in the housing market, said IHS Global Insight economist Howard Archer, adding that he expected house prices to fall by around 3 percent.

The net repayment of debt showed that consumers were unlikely to go on a credit-fuelled spending spree anytime soon.

“It is very possible that increased worries over the outlook resulting from news that the economy is back in recession and from the situation in the euro zone may well intensify the desire to improve personal finances,” Archer said.

The government has announced a number of schemes aimed at getting credit flowing through the economy by lowering banks’ funding costs, because actual mortgage rates have drifted up despite the Bank of England’s record-low base rate.

While banks have long said households and companies are reluctant to borrow due to the tough economic outlook, consumer and business lobby groups have blamed banks’ tighter credit conditions for the weakness in lending.

“Companies continue to weather the tough economic trading conditions by repaying more than they seek to borrow,” BBA statistics director David Dooks said.

Business secretary Vince Cable has said the government hopes to spur a 1930s style housebuilding boom to get the economy growing again.

A sharp fall in construction output has been the main reason for the overall economic contraction in the first three months of 2012, which put Britain into its second recession since the start of the financial crisis in 2008.

Reporting by Sven Egenter; Editing by Catherine Evans

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