UK Mortgage Approvals Hit Four-Month High

**BOE Programme to Prove Effectiveness**

Lending to UK homebuyers in September jumped to its highest level since May, offering tentative signs that the Bank of England’s (BOE) Funding for Lending Scheme (FLS) may be having an impact, The Times reported on 30 October 2012. According to new figures released by the BOE on Monday, mortgage approvals for house purchases rose for the third month in a row to 50,024, from 47,921 in August, while the average effective rate for all mortgages slid to 3.77 per cent, from 3.84 per cent.

The four-month high of mortgages approvals has presented tentative evidence that the multi-billion-pound scheme designed to unclog the flow of credit to Britain’s homebuyers was starting to have an impact. Property economist at Capital Economics Matthew Pointon said: “The news that mortgage lending is rising while mortgage rates are dropping may be a sign that the FLS is starting to make an impact.” Despite the pick-up, however, Mr Pointon stressed that mortgage approvals are less than half the monthly average of 103,000 in the decade to 2007 before the financial crisis struck, and that it will take “a lot more than a few percentage points off mortgage rates to kick-start a housing market recovery”.

!m[Funding for Lending Scheme May Be Having an Impact, But Property Market Recovery Remains Uncertain](/uploads/story/687/thumbs/pic1_inline.png)Since the start of the financial crisis, UK banks have curtailed mortgage lending to strengthen balance sheets. This lack of credit supply has hurt Britain’s housing market. In an effort to provide support for activity, the Bank of England launched an £80-billion scheme which gives banks cheap loans which must then be passed on to the consumer. Since the FLS was launched in August this year, 13 banks have signed up to the programme, according to the BOE’s statement from September 25th. The central bankers have also cautioned that it would take several months before the effect of the scheme became visible and significant for the market.

**Property Pessimism Eases but Prices Remain Subdued**
According to commercial insurer RSA and the Centre of Economics and Business Research, during the recession, there was a 42 per cent decline in commercial real estate construction output. Overall, between 2007 and 2011, the value of commercial construction is estimated to have fallen 32 per cent from £41 billion to £28 billion — its lowest level in a decade. A report from British real estate firm Rightmove Plc shows, however, that the proportion of people forecasting higher prices in the next 12 months rose to 29 per cent from 22 per cent a year ago.

Despite this easing in property market pessimism, house prices across the UK remain subdued. According to an e-mailed statement by a London-based property research group, Hometrack, UK prices had fallen for a fourth consecutive month in October — by 0.1 per cent and by 0.4 per cent from a year earlier. Hometrack’s research director Richard Donnell remarked that “the foundation of any national and sustainable recovery in the housing market rests on growth in the wider economy and household incomes.”