Mortgage approvals by banks slump

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Mortgage approvals by high street banks fell to their lowest level in over a year in May and households continued to pay down debt, the British Bankers’ Association said, in a sign that the housing market remains in the doldrums.

Mortgage approvals fell more than 3 per cent from a year ago to 30,238 and net mortgage lending dipped by £73m from April – its first fall since records began in 1997 as repayments outpaced stable gross lending, the BBA said yesterday.

The numbers underlined the weakness in the housing market, said IHS Global Insight economist Howard Archer, adding that he expected house prices to fall by around 3 per cent.

The net repayment of debt showed that consumers were unlikely to go on a credit-fuelled spending spree anytime soon.

“It is very possible increased worries over the outlook resulting from news that the economy is back in recession and from the situation in the eurozone may well intensify the desire to improve personal finances,” Mr Archer said.

The government has announced a number of schemes aimed at getting credit flowing through the economy by lowering banks’ funding costs, because actual mortgage rates have drifted up.

While banks have long said households and companies are reluctant to borrow, consumer and business lobby groups have blamed banks’ tighter credit conditions for the weakness in lending.