Mixed lending figures point to stabilising property market

The Bank of England injected further optimism into the housing market today when it published figures showing mortgage lending had increased again in January, rising at its fastest pace since the end of the summer.

The value of loans approved grew to ?21.9bn, the second consecutive monthly rise, and the highest monthly figure since August's ?23.2bn. Borrowing against property grew by ?7.2bn or 0.8% in January, seasonally adjusted, ?0.3bn stronger than the increase in December, the bank said.

But while lending on the whole was up, the number of loans approved for house purchase failed to soar. In January, 79,000 mortgages were lent to people buying property, just below the average of 81,000 in the three months to December and 38% lower than at the same time last year.

Commenting on the figures, a spokesman for the Royal Institution of Chartered Surveyors, said: "The market has been helped by a break in interest rate rises over the last six months, though previous rate increases in 2004 have ensured ongoing restrained market conditions."

The group said it did not predict a "significant upturn" in the property market in 2005, and instead said that a rise in interest rates was likely, which would have a knock-on effect on affordability.

David Page, economist at Investec, said: "It's a very mixed picture. The lending figures are slightly firmer than we had expected and point to some stabilisation in the market.

"But the approval numbers - which give an insight into lending over the coming few months - are less easy to interpret. The number of approvals has fallen, but the value of approvals has risen, giving a somewhat confused picture.

"But it does suggest things are stabilising. Compared to the Bank of England's current forecast, which is for modest house price falls, the housing market does appear to be stronger."

Publishing its monthly house price index today, Nationwide building society said that the property market may have "bottomed out", as prices had risen in February at the fastest monthly pace for three months. The lenders said that average property values had increased by 0.5% to ?152,879 in February, following a 0.4% rise in January.

The Bank of England said that borrowing on credit cards and other unsecured loans also rose, bringing the total amount of household debt to ?1.065 trillion after an increase of ?2.29bn last month.