LONDON (Reuters) - Mortgage lending grew almost twice as fast as expected in February, and the number of mortgage approvals rose to its highest level for nearly a year, in a tentative sign the housing market may be nearing a floor.
The number of loans approved for house purchase rose to 37,937 in February from 31,791 in January, the Bank of England said on Monday, the highest since May 2008 and above forecasts for a modest increase to 34,000.
Mortgage lending rose by 1.507 billion pounds, almost double analysts’ forecasts for an 800 million pound rise, and up from just over 1 billion pounds in January.
Analysts said the figures offered a first indication that activity in the sinking housing market may have passed its low point, but that prices were likely to continue to sink for months to come.
“The further limited rise in mortgage approvals, and reports from estate agents that buyer enquires have recently picked up appreciably, suggest that housing market activity has very likely bottomed out,” said Howard Archer, economist at IHS Global Insight.
However, it is probably too early to call a turn in the market, especially as the number of home loan approvals are still only around a third of the level what they were in 2007.
“Approvals have a long way to go before they get to levels that are no longer consistent with falling house prices — in fact they need broadly to double,” said Vicky Redwood, an economist at Capital Economics.
House prices have plunged by around 20 percent from the peak in 2007 as a global shortage of credit has forced banks to cut back on lending and ramp up borrowing costs, even as official interest rates have been cut sharply.
And the difficulty in getting a mortgage, combined with a rapid slowdown in the economy and soaring unemployment have made people reluctant to buy or move home, adding to the downward pressure on prices.
The Bank has slashed borrowing costs to a record low of 0.5 percent and started buying assets to get cash flowing around the economy to kick-start growth. But it could be a while before those measures feed through into the wider economy.
Surveys from two of Britain’s biggest mortgage lenders showed house prices fell at a record annual rate last month. Still, the Royal Institution of Chartered Surveyors’ monthly survey has suggested a pick-up in interest from prospective home buyers.
Britain is suffering its first recession since the early 1990s and the Bank has launched a 75 billion pound programme to purchase assets to try to kickstart lending and ward off a deeper and more prolonged downturn.
Monday’s data suggested that the gloomy economic outlook may have encouraged consumers to pay off unsecured credit last month, with Britons repaying a total 245 million pounds of consumer credit in February — their biggest net repayment of debt since records began in 1993.
Monday’s figures echo other recent data that suggest consumers are tightening their belts in the face of the worst economic downturn in nearly three decades.
Retail sales grew at their slowest annual rate in more than a decade last month, while households saved the biggest proportion of their income in nearly 3 years at the end of 2008.
The Bank also said that its measure of broad money supply, M4, grew by 1.4 percent in February, slower than January’s 2.4 percent rise. The annual rate of M4 growth increased to 18.7 percent from 17.5 percent.
“Consumer credit remains very weak,” said Colin Ellis of Daiwa Securities. “Of course, it is too early to have seen any impact from the BoE’s gilt purchases in these data — but these data do highlight how badly that injection of liquidity is needed.”
Editing by Toby Chopra