U.K. Mortgage Approvals Drop to Least Since 1999
By Jennifer Ryan
(Bloomberg) U.K. mortgage approvals dropped in December to the lowest in at least nine years, and consumer credit fell, threatening the outlook for economic growth.
Lenders granted 73,000 loans for house purchase, down from 81,000 in November and the least since records began in January 1999, the Bank of England said in London today. The median forecast in a Bloomberg News survey of 24 economists was 79,000. Lending on personal loans and overdrafts fell to 265 million pounds ($530 million), the least in 15 years.
Banks are tightening credit standards after contagion from the U.S. subprime mortgage market collapse, the Financial Services Authority said yesterday. Less access to credit for Britons with record debt may further slow consumer spending and a weakening housing market, adding to the case for an interest rate reduction by the Bank of England as soon as next week.
“The household sector was clearly under some kind of pressure at the end of 2007,” James Shugg, an economist at Westpac Banking Corp. in London, said in an interview on Bloomberg Television. “The U.K. housing market is embarking on a much slower growth period.” He predicted further interest rate reductions after a quarter-point cut last month.
In a separate statement, Prime Minister Gordon Brown reappointed central bank Governor Mervyn King to serve another five-year term. King accepted the position, saying in a statement that he looks “forward to working hard with my bank and MPC colleagues on the economic and financial challenges that face us all.”
Consumer Credit
The central bank’s report today showed consumers borrowed less on unsecured credit as they faced repaying a record 1.4 trillion pounds in debt and banks curbed lending to them. Net consumer credit fell to 557 million pounds in December, less than half the previous month’s total.
“A significant minority of consumers could experience financial problems because of their high levels of borrowing,” the FSA, the U.K.’s financial regulator, said in its risk outlook report yesterday. “A growing number of consumers are likely to experience debt repayment problems in 2008.”
The average cost for a fixed-rate mortgage maturing in the next 12 months and switching to a variable rate will rise by about 210 pounds per month, creating a “serious impact on the affordability of the loan,” the FSA said. The increase will affect about 1.4 million home loans.
Subprime Losses
Britons face higher home loan costs after banks around the world posted at least $133 billion in losses from the collapse of the U.S. subprime mortgage market.
The average rate offered by lenders on a mortgage for 95 percent of the price of a property, fixed for 24 months, rose to 6.53 percent in December from 6.44 percent, the central bank said Jan. 10. The central bank’s credit conditions survey showed banks plan to limit access to all debt in the first quarter.
“There is a risk that some consumers could find it difficult to meet their credit commitments due to tighter lending standards for both secured and unsecured credit,” the FSA said.
All 30 economists in a Bloomberg News survey forecast the Bank of England will cut interest rates a quarter point to 5.25 percent on Feb. 7 as growth slows and the housing market stalls.
U.K. retail sales rose at the slowest pace in 14 months in January, the Confederation of British Industry said yesterday.
House prices fell for a fourth month in January, Hometrack Ltd. said Jan. 28. U.K. real estate professionals said December was the worst month for the housing market since the aftermath of Britain’s last recession in 1992, according to a Jan. 16. report by the Royal Institution of Chartered Surveyors.
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