Banks approve more mortgages as housing confidence returns

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The number of mortgage approvals granted to home buyers by UK high street banks reached a six-year high in December in a further sign of consumer confidence.

The British Bankers’ Association (BBA) said that across 2013, mortgage borrowing reached its strongest level since 2008, as Government initiatives such as Help to Buy helped to inject more first-time buyers into the market and free up housing chains.

Some 46,521 approvals for house purchase worth £7.7bn got the green light in December, the highest monthly total since September 2007 and an increase of over two-fifths (42 per cent) compared with December 2012.

The BBA said that gross mortgage borrowing of £110bn in 2013 was a fifth higher than in 2012 and the most since 2008.

BBA statistics director David Dooks said: “These figures show that mortgage lending grew strongly towards the end of last year. This provides further evidence of a more active housing market, helped by growing consumer confidence and Government support schemes such as Help to Buy.”

The number of mortgages on the market for people with just a 5 per cent deposit has tripled since the latest phase of the Government’s Help to Buy scheme began last October.

The scheme offers state-backed mortgages to creditworthy people who have had tough times trying to move on to or up the property ladder because they only have small deposits.

Matthew Pointon, a property economist at Capital Economics, said the BBA’s figures “may increase concerns that the mortgage market is heading for another unsustainable boom”, adding: “But while a possibility, we doubt that is the most likely outcome. Banks show no signs that they are about to start engaging in the kind of lending practices that characterised the mid-2000s credit boom.”

Mr Pointon said toughened mortgage rules due to come in this April are likely to “keep a lid on lending”.

These rules aim to prevent irresponsibility and mean that lenders will have to consider not only whether someone can afford their mortgage repayments now but also when interest rates rise.

Meanwhile, the BBA said non-mortgage borrowing increased by 0.1 per cent over 2013. Within this figure, growth in card borrowing of 4.2 per cent outweighed a fall of 3.5 per cent in borrowing on personal loans and overdrafts.

December saw a seasonal rise in people dipping into their overdrafts. A £566m net increase in such borrowing was recorded during the month, even though some consumers remain cautious.

Despite the run-up to Christmas, consumers paid back slightly more on their credit cards in December than they put on them in new spending.

Some £8.1bn of new spending on credit cards was recorded in December, while £8.2bn was made in repayments, reversing a trend seen in recent months when consumers spent slightly more than they paid back.

On average in each of the previous six months, people spent £8.2bn on credit cards and made £8.1bn repayments.

The BBA’s figures also showed that net borrowing by non-financial businesses decreased by £650m in December, while net borrowing by financial businesses fell £25.7bn.

The report said that although business borrowing continues to contract, the manufacturing sector has started to borrow more.

Howard Archer, chief UK and European economist for IHS Global Insight, commented: “As demand for credit does pick up, it is vitally important for healthy and more balanced UK growth that all companies who are in decent shape and who do want to borrow – whether it be to lift investment, explore new markets or generally support their operations – can do so.”