House lending figures point to downturn

Further proof of the downturn in the housing market emerged yesterday as the Bank of England reported that new mortgage approvals had fallen to their lowest in almost five years.

There were more optimistic signs from a survey of consumer confidence, however, which showed an unexpected pick up last month.

The Bank said mortgage approvals, which are an indicator of house prices in the coming months, fell for the fifth month running in October to 83,000 from 88,000 the month before. The new number is the lowest since January 2000.

Net mortgage lending grew at its slowest monthly pace since November 2001, rising by £7.52bn compared with £7.57bn in September and well down from the £10bn of a year ago.

The data follow a stream of weak reports on the housing market and will reinforce the views of those predicting a sharp fall in house prices over the next couple of years.

However, Simon Rubinsohn, economist at brokers Gerrard, said the numbers showed the pace of decline in lending, which was steep in the summer and autumn, now appeared to be levelling out.

"Our analysis suggests that this is broadly consistent with a flat housing market. In the near term that is likely to mean further modest declines in property prices.

"[The figures] do provide further justification for holding [monetary] policy steady for the time being. Even so, we believe that it is still premature to conclude that the base rate cycle has peaked."

The Bank's monetary policy committee has raised interest rates five times over the past year to a current level of 4.75% and many City economists think that may mark the peak.

There was some positive news as GfK's monthly index of consumer confidence unexpectedly improved, ticking up from -6 to -4. Economists said the improvement was probably down to a growing realisation among consumers that interest rates may now remain on hold.

Howard Archer, analyst at Global Insight, said the drop in oil prices over the past month may also have helped consumer sentiment.

All eyes will be on the latest house price report from the Nationwide, due out this morning and which a month ago showed prices fell 0.4% in October, the first fall in three years.