LONDON (Reuters) - Mortgage lending growth gathered pace in June and approvals for home loans held steady in a sign that a string of interest rate rises has not cooled the housing market.
The Bank of England said lending secured on dwellings rose by 9.550 billion pounds last month after an 8.752 billion pounds rise in May.
Mortgage approvals — a leading indicator for the housing market — numbered 114,000 for the second consecutive month when economists had expected them to fall.
Still, the figures failed to alter expectations the central bank will hold borrowing costs at 5.75 percent this week as policymakers take time to weigh up the recent financial market turmoil and the impact of the last five rate increases.
“It doesn’t change the outlook for this week’s interest rate decision, but if we don’t see a slowdown in the next few months it will add to the argument for rates rising to 6 percent,” said David Page, economist at Investec.
Monday’s numbers, however, contradict recent surveys suggesting the housing market is coming off the boil but policymakers have themselves noted that signs of slowdown so far are at best tentative.
The latest survey from mortgage lender Nationwide showed house prices virtually stagnated this month but were still up nearly 10 percent on the year. Data from property consultants Hometrack earlier on Monday also showed house price inflation slowing.
“It is early days yet, and we suspect that a more sizeable decline in approvals will materialise in the coming months as the rise in interest rates and slow disposable income growth take their toll on affordability,” said George Buckley, chief UK economist at Deutsche Bank.
Unsecured lending rose by 874 million pounds last month, only slightly lower than May’s 894 million pound rise, the BoE said. That, combined with mortgage lending, took Britons’ total debt up by 10.4 billion pounds to nearly 1.35 trillion pounds.
So far, the increase in debt has meant that Britons have been able to shrug off the squeeze in disposable incomes. But rising borrowing costs are already beginning to take their toll with insolvencies rising and home repossessions on the rise.
Ratings agency Fitch said a combination of overvalued property, high debt levels and rising interest rates left the economy particularly vulnerable to a correction.
But the Bank’s more hawkish policymakers will likely seize on continuing strong money supply growth as a reason to raise rates.
M4, or broad money, increased by 0.7 percent in June for an annual rate of 12.9 percent. That was slightly lower than an initial estimate and weaker than in May but probably not enough to persuade policymakers that price pressures are abating.
“The longer the strength in money growth and lending persist, the greater the chance that the MPC feel they have to raise rates again this cycle,” said Deutsche’s Buckley.