Mortgage approvals crumble in August

By Christina Fincher and Bate Felix Reuters - Tuesday, September 23 12:32 pm

LONDON (Reuters) - The number of mortgages approved by major British banks fell to a record low in August, industry figures showed on Tuesday, suggesting no end was in sight for the country's housing market woes.

The British Bankers Association said just 21,086 mortgages were approved for house purchase last month, the lowest since the survey began in 1997 and roughly a third of the number approved in the same month last year. The latest figure was some 12,000 below the average of the previous six months.

"These data fit in with other signs that the UK housing market remains in freefall, hit by stretched valuations, the credit crunch and understandable worries among the general public over prospects for jobs and incomes," said Michael Saunders at Citi.

The BBA blamed uncertainty regarding the government's policy on stamp duty for exacerbating the slide. After several weeks of speculation, the government moved on September 2 to make all home transactions worth 175,000 pounds or less exempt from stamp duty for one year.

Housing groups criticised the government for floating the idea of a stamp duty holiday without immediately acting on it, saying potential home buyers had postponed their purchases as a result.

"Falling property prices, economic pressures on households, tighter lending criteria and anticipation of the government's announcement on stamp duty all suppressed or delayed demand in August," said BBA statistics director David Dooks.

RATE CUT PRESSURE

The combination of frozen lending markets and tumbling house prices will increase pressure on the government to shore up the sagging mortgage market and the Bank of England to cut interest rates.

The BoE has kept rates at 5 percent since April but the latest data bolstered market expectations for at least three rate cuts by this time next year.

British house prices have already fallen more than 10 percent from last year's peak last year as the credit crunch makes it harder and more expensive to get finance. Tuesday's data suggested the fall would continue.

Total mortgage lending was just 2.1 billion pounds in August, less than half the previous month's total.

"This is a really dismal set of mortgage data," said Howard Archer at Global Insight, adding the government efforts to prop up such a weak market "are very unlikely to have any significant impact in stabilising activity or prices."

Shares in the country's biggest mortgage lender HBOS were down more than 10 percent in midsession trade as the drop in mortgage approvals added to concerns that a takeover by Lloyds TSB would not solve its funding problems.

Massive liquidity injections from central banks have succeeding in bringing overnight lending rates down in recent days but three-month lending rates remain elevated.

The government is expected to publish a report on ways to revive mortgage finance in the next few weeks. However, Bank of England Governor Mervyn King has already signalled his opposition to any plan which involves taxpayer-backed mortgage guarantees, making it harder for the government to come up with radical solutions.

(Editing by Ruth Pitchford)

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