Remortgaging levels hit two-year high

Around 35,725 loans were approved for people switching to a new deal during the month, the highest level since December 2008, according to the Bank of England.

The increase is likely to have been driven by expectations that the Bank of England will increase the base rate from its current record low of 0.5% sooner than previously thought due to high inflation.

The speculation has prompted people who had been sitting on their lenders’ standard variable rate to remortgage before rates start to rise.

But despite the increase, remortgage levels are still running at well below the more than 100,000 approvals a month that were seen before the credit crunch struck.

There was also a slight increase in the number of mortgages approved for house purchase at 46,967, the highest level since November last year, but still significantly below the 70,000 to 80,000 approvals a month that are thought to be consistent with a stable housing market.

Net mortgage lending, which strips out redemptions and repayments fell to £1.2 billion in February, down from £1.9 billion in January, although this was slightly up on the recent six month average.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Despite the modest pick up in mortgage approvals reported by the Bank of England in February, the housing market clearly is still very weak which does not bode well for house prices.

“We suspect that house prices will fall by around 5% in 2011 and end up losing around 10% from the peak levels seen in the first half of 2010.”

Consumer credit was more buoyant than it has been in recent months, with people taking on £768 million of unsecured debt during the month.

Within the total, credit card borrowing increased by £450 million, broadly in line with the recent trend, but borrowing through loans and overdrafts jumped by £672 million - the second biggest increase since July 2008.

Meanwhile figures from the Building Societies Association showed that net lending by mutuals had remained negative for the 26th consecutive month, with homeowners repaying £614 billion more during February than was advanced in new lending.

But mortgages worth £1.69 billion were approved by the sector, also the highest level since November last year, and 23% up on the figure for February 2010.

Savings balances held by mutuals edged ahead by £150 million, an improvement on the previous month when customers withdrew £697 million more than they deposited, but down on net savings levels of £1.09 billion in December.