Bank of England sees mortgage surge

Mortgage lending has surged to its highest level for almost two years, according to new Bank of England figures which put paid to suggestions that the housing market is beginning to slow down.

The number of mortgage approvals rose to 105,000 in February, up 11,000 on January and the highest figure since the Bank changed the way it records data in October 1997.

The take-off in loan approvals - defined as the "firm offer" made to a homebuyer, usually after a survey has been carried out - comes after recent signs that they may have been slowing, said economists. The new figures may strengthen the argument for an increase in interest rates when the Bank of England monetary policy committee meets next week.

Some observers said the surge in mortgage activity may be linked to a rush to complete house purchases ahead of an anticipated rise in stamp duty in the Budget last week. These fears were borne out when the chancellor announced a 0.5% increase in stamp duty on properties costing more than £250,000.

Figures issued by the Halifax earlier this month added weight to suggestions that the housing market was coming off the boil. It said house prices fell by the largest amount in a single month for almost six years in February. However, this finding was contradicted by Nationwide building society, which said prices jumped by 2.2% in February - the largest monthly increase since 1991.

Nationwide issues its house price figures for March this afternoon, which are expected to show another substantial rise.

In the February inflation report, the monetary policy committee drew comfort from the dip in mortgage approvals seen in December, noted Michael Saunders, UK economist at Salomon Smith Barney Citibank. "That sign of slowing housing now looks less certain," he said.

The average number of property sales in January and February was the highest since 1989. A recent survey by the Royal Institution of Chartered Surveyors also showed a jump in transactions.