UK mortgage lending falls

The number of mortgages approved for buying properties dropped sharply in July compared with the previous month and a year ago, the British Bankers' Association said today.

In the latest sign that higher interest rates were beginning to bite, the BBA said a total of 70,756 new loans had been approved last month - a 20% fall from 88,859 in June and 89,352 last July.

"At this time of the year, when demand is usually strong, loan approvals data - which indicate the short-term path of future lending - were surprisingly weak, with loans for house purchase particularly downbeat," David Dooks, the BBA director of statistics, said.

The BBA said just 70,756 loans, worth ?7.9bn, had been approved for people moving house during the month, down from June's ?10.3bn value. At the same time, the average value of a mortgage approved for house purchase dropped to ?114,100 from ?116,100.

"It's more tentative evidence to suggest that the housing market is a little weaker than it was," George Buckley, a UK economist at Deutsche Bank in London, told Reuters. "I'm sure the Bank of England will note these figures in their next discussions."

The Bank has raised interest rates five times since November, taking them to 4.75% in an attempt to curb house price inflation as well as hit its inflation target of 2%.

Earlier this week, property website Hometrack reported that house prices had fallen for the second month in succession during August.

Hometrack said prices in England and Wales had dipped by 0.1% during the month to August 18, averaging ?152,100. July also saw prices fall by 0.1%, Hometrack said, with monthly growth having fallen steadily since reaching a peak of 0.9% in February

However, some economists have yet to be convinced that the housing market - which has consistently defied expectations of a slowdown - really has cooled off.

"I'm surprised by how much they've [new approvals] fallen in one month, and I think this will support the Bank's claim that the housing market is slowing," John Butler, a UK economist at HSBC, said. "But we've seen this before."

In the minutes of its August 4-5 interest rate meeting, the Bank noted: "There were now signs that the pace of house price increases was beginning to slacken." It cited surveys from the Halifax and Nationwide as evidence.