Fears over housing market persist

Mortgages approved for house purchases increased 1.5 per cent to 49,239 in July, up from a four-month low in April, the Bank of England said.

But this represented a slowdown on the previous month, when the rate increased by four per cent.

The number of approvals for remortgaging was virtually flat, after increasing by just 20 to 30,810, as the threat of an interest rate rise began to recede. This was lower than the average over the past six months of 31,340.

Howard Archer, chief UK economist at IHS Global Insight, said: “Despite mortgage approvals rising to a 14-month high in July, housing market activity remains very low compared to long-term norms.

“With consumer confidence weak and the economic outlook currently looking pretty grim, we see little reason to change our view that modest falls in house prices are more likely than not over the coming months.”

He added that mortgage approvals have averaged around 90,000 a month since 1993, while a level of 70,000-80,000 has in the past been considered consistent with stable house prices.

He expects house prices to fall by around five per cent by mid-2012 as a result of “troublesome economic fundamentals and low consumer confidence”.

Brian Hilliard, an economist at Societe Generale, said interest rates have fallen but consumer confidence is “very low” and the market is “still overvalued”.