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Net mortgage lending weak in March, approvals up

Source: Reuters - Tue 4th May 2010

British mortgage lending rose much less than expected in March, reflecting housing market weakness at the start of the year, though approvals increased broadly in line with forecasts, Bank of England figures showed on Tuesday.

The Bank said that net mortgage lending rose by 318 million pounds in March, well below economists' forecasts of a 1.6 billion pound rise and the lowest since July 2009, when the housing market was just coming out of a deep slump.

However, mortgage approvals rose to 48,901 from 48,882, broadly in line with forecasts for a figure of 49,000. Mortgage approvals had slumped by around 10,000 between December and January, a factor attributed to unusually poor weather and the end of a tax break on home purchases.

Changes in mortgage approvals tend to show up in actual lending data with a lag of around three months, and the Bank said that January's fall in approvals - combined with higher gross repayments - could now be showing up in the March net lending figures.

"The approval numbers seem to have resumed their slow upward grind, but it's still a recovery from well below the recent peak" said Philip Shaw, economist at Investec.

"The softness of the mortgage lending numbers at least in part reflects the softness of approvals figures over the last couple of months" he added.

There was limited market reaction to the figures, with investors more focussed on the national election on Thursday and a CIPS/Markit survey purchasing managers in the manufacturing sector, which showed activity grew at its fastest pace last month since September 1994.

Consumer credit growth was just under expectations, up 325 million pounds on the month compared to forecasts of a 400 million pound rise.

Separate figures showed the Bank's preferred money supply gauge - M4 excluding intermediate other financial corporations - accelerated to a monthly growth rate of 1.1 percent in March.

But total M4 lending grew at its slowest annual pace since 1994, and M4 lending to private-sector non-financial companies fell at its fastest pace since records began in September 1997.

"We expect consumers to provide little support to the recovery as it develops this year," said Hetal Mehta, economist for the Ernst & Young ITEM Club. "The slow turnaround in lending will constrain the economic recovery over the course of 2010."

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