Fears of house market boom as mortgages reach five-year high

Approvals for house purchase loans rose to 60,624 in July – the highest number since March 2008 – up from 58,238 in June, according to the Bank of England.

Net mortgage lending rose by £707m last month, while the official figures also showed that average interest rates on a new home loan fell to 3.17 per cent in July – the lowest rate since comparable records began in 2004.

The data is the latest sign of resurgent conditions in the property sector, with the latest Nationwide figures also showing that house prices rose 0.6 per cent between July and August and 3.5 per cent year-on-year this month.

Government initiatives such as Funding for Lending and Help to Buy are spurring on a revival in the market, by helping borrowers with small deposits and making credit cheaper and more easily available.

But there are concerns these schemes will push up house prices and borrowing levels, sparking another housing bubble.

Bank of England governor Mark Carney has sought to assure this week he is acutely aware of the risks of a housing boom and is ready to step in with direct action to head off the threat.

In an interview with the Daily Mail, Mr Carney said he was alert to the potential “damage” of a house price bubble, saying: “I lived in the country (the UK) in the late 80s, 1990s, I saw the boom-bust cycle in the housing sector, the damage it can do, the length of time it took to repair.”

He reiterated warnings made earlier this week in a speech to business leaders in Nottingham that he could use the new powers of the Bank’s financial policy committee to curb surging house prices and uncontrolled mortgage lending.

Samuel Tombs, UK economist at consultancy Capital Economics, said: “July’s UK household lending figures are likely to fuel speculation that the housing market is in the early stages of another boom.”

He added that improvements in more forward-looking data, such as new buyer inquiries in the Royal Institution of Chartered Surveyors housing market survey or the main measures of consumer confidence, suggest that further rises in approvals “probably lie ahead”.

But he said given that approvals are still more than 40 per cent down on the levels seen before the financial crisis, “talk of a renewed boom in the housing market still seems to be wide of the mark”.

And while Government schemes are helping mortgage borrowers, state action failed once more to improve credit conditions for small businesses.

The Bank’s figures showed net lending to small and medium sized businesses (SMEs) fell £287m in July, reversing the £137 million gain in June.

Small firms repaid more than they borrowed, with repayments last month hitting £4.1bn – the highest level since March 2012.

The cost of borrowing also failed to ease for companies as the Bank said average interest rates on new business loans rose to 2.71 per cent in July, which is the highest since April.

Steve Davies, head of UK retail banking at PricewaterhouseCoopers, said many companies were using cash reserves built up in recent years to fund investment, rather than taking out more debt. “It’s possible that these figures mask an even larger increase in investment activity that is currently under way,” he added.

Property values rose by 3.5 per cent year on year, taking the average price for a UK home to £170,514, according to Nationwide building society. This marked a slight fall on the 3.9 per cent surge seen in July, the biggest annual rise for three years.