Housing market shows signs of life

The housing market upturn appears to be strengthening again as the number of mortgage approvals last month jumped by a fifth, the British Bankers' Association said today.

The number of approvals for house purchases, agreed but not completed, totalled 81,298, a rise of 20% from May last year. The value of loans also rose to £11.3bn, 33% higher than May 2005.

"The robust BBA mortgage lending and approvals data for May indicate that the housing market upturn is still alive and kicking, following some recent signs that it could be starting to falter," said Howard Archer, economist at Global Insight.

Remortgaging approvals rose by 8% from a year ago to 68,296, increasing in value by 28% to £8.4m. The BBA left unrevised last week's overall figures on mortgage lending of £5.7bn, the strongest figure in more than two years.

Analysts said the BBA figures suggested that the Bank of England's seasonally adjusted data, due out on Thursday, would also be strong and show an improvement in the housing market for May, after an Easter-related slowdown in April.

"The balance of evidence suggests to us that overall mortgage demand will remain in its current holding pattern for the next one or two months," said Kelvin Davidson, economist at Capital Economics. "However, we continue to believe that stretched affordability and rising unemployment will be factors behind a downward drift in mortgage demand in the second half of the year."

Net credit card lending was revised to show a fall of £251m from the £240m published in the BBA's data last week. This was offset by a rise in lending on personal loans in May, for the second successive month, which economists believed was partly driven by World Cup-related spending.

Meanwhile, figures from Industrial Relation Services showed that pay settlements averaged 3% in the three months to May, unchanged from levels seen so far this year and through 2005. The organisation also noted that fewer than one in four workers received a larger pay increase than a year ago.

Underlying average earnings data, excluding bonuses, rose by 3.8% year on year in the three months to April, well below the 4.5% level generally considered to be consistent with the Bank of England's 2% consumer price inflation target.

"The IRS survey should be well received by the Bank of England and it bolsters the case for interest rates to remain unchanged for some time to come, as it indicates that higher energy prices and recently increased inflation expectations are still not feeding through to push up pay," Mr Archer said.