Mortgage Informer

U.K. mortgage approvals matched the lowest since at least 1999 in October as the financial crisis intensified, prompting banks to hoard money and curb loans.

Lenders granted 32,000 loans for house purchase, down from 33,000 in September, the Bank of England said today in London. The result was the same as the median forecast of 30 economists in a Bloomberg News survey, and matched the figure for August, the lowest since the data began almost a decade ago.

Bank of England Governor Mervyn King said last week that the “single most pressing challenge” facing policy makers is getting credit to flow through the economy again. Economists say the central bank will cut the benchmark interest rate on Dec. 4 to 2 percent, the lowest level since 1951, to prevent the recession from deepening.

“Housing demand is very weak, and it’s being damped by an ongoing tightening in lending conditions,” said Nick Kounis, chief European economist at Fortis in Amsterdam and a former U.K. Treasury official. “Interest rates have got to fall significantly further.”

The pound fell as much as 0.2 percent against the dollar after the report’s release, and traded at $1.5134 as of 9:45 a.m. today in London.

Net lending secured on dwellings fell to 459 million pounds ($695 million) in October, compared with 1.49 billion pounds the previous month, the Bank of England said. Gross lending secured on homes fell to 17 billion pounds, the lowest since 2002.

Mortgage Lending

Mortgage lending by customer-owned lenders was 413 million pounds in October, down 45 percent from a year earlier, the Building Societies Association said in a separate report today.

Getting banks to lend again is “more important than anything else at present” and it would be a “serious error” to rule out measures including nationalizing some banks, King told lawmakers on Nov. 25. His words were echoed by Prime Minister Gordon Brown, who urged banks to free up credit as political pressure mounts for measures to force them to lend.

Britain’s economy is in the throes of its first recession since the early 1990s. Economic growth contracted 0.5 percent in the third quarter, as consumer spending dropped the most since 1995. Unemployment rose to the highest in 16 years in October.

A U.K. index of retail sales matched the lowest level in at least 25 years in November, the Confederation of British Industry said on Nov. 28. House prices fell 8.1 percent from a year ago, Hometrack Ltd. said today.

`Particularly Ugly’

“We’ve got several very weak quarters to go and the current quarter is going to be particularly ugly,” said Fortis’s Kounis. “The recession will last through the first half of next year.”

Consumers, with record debts of 1.5 trillion pounds, added to their unsecured loans in October, today’s report showed. Consumer credit rose a net 844 million pounds, compared with 345 million pounds in September. Lending on credit cards, personal loans and overdrafts rose on the month.

M4, the broadest measure of money supply in the economy, increased a record 2.8 percent in October from the previous month, the Bank of England said today. On the year, it rose 15.3 percent, the most since 1990.

The Bank of England will reduce its benchmark interest rate by 1 percentage point this week from the current 3 percent, according to the median forecast of all 60 economists in a Bloomberg News survey.

Related posts:

• Mortgage approvals fall to series low in July
• UK mortgage approvals collapse to record low of 42,000
• UK mortgage lending up 24 pct
• Mortgage Rates on 30-Year U.S. Loans Fall to 4.97%
• Mortgage application volume rises 2.8 percent

Tags: Mortgage lending, UK mortgage