UK mortgage approvals turn around, jump 8 percent in June

By William Schomberg and Tess Little
A worker walks past a picture of the London skyline outside the sales office of a property development in central London July 2, 2014. REUTERS/Luke MacGregor

By William Schomberg and Tess Little

LONDON (Reuters) - British mortgage approvals rose for the first time in five months in June, suggesting lenders were getting back into their stride after the introduction of more stringent tests for borrowers earlier this year.

The Bank of England, which is keeping a close eye on Britain's fast-recovering housing market, said mortgage approvals jumped 8 percent from May to 67,196 last month.

Analysts had forecast a smaller rise in approvals to 62,600.

Economists said the hefty increase countered some signs in recent surveys of a slowing of the housing recovery.

"The appreciable rise in mortgage approvals fuels uncertainty as to whether the recent loss of momentum in housing market activity is likely to be lasting or just a temporary development," said Howard Archer at IHS Global Insight.

As well as the introduction in April of tougher checks on whether borrowers can afford their mortgages, the BoE last month announced measures to prevent a build-up of risky home loans.

Monthly mortgage approvals are still short of the 90,000 level seen before the 2008 financial crisis, and below a recent peak of just over 76,000 in January.

But house prices have risen rapidly in recent months amid a shortage of new home-building.

BoE Governor Mark Carney has said that housing is the biggest domestic threat to Britain's economic recovery given the risk of borrowers taking on too much debt. He says controls on bank lending will be the first line of defence against a housing bubble, rather than an increase in record-low interest rates.

Stress tests for British banks later this year may also cool the enthusiasm of lenders to offer mortgages.

The BoE said on Tuesday that mortgage lending in June rose by 2.1 billion pounds, easing off a bit from May's growth.

The Bank has been trying to cool the mortgage market since January when it refocused its Funding for Lending Scheme away from mortgage lending and dedicated it entirely to businesses.

The BoE said lending to non-financial businesses slumped by 3.4 billion pounds in June, its biggest fall since November last year, compared with an increase of 2.3 billion pounds in May.

But lending to small businesses alone edged up by 235 million pounds, something economists said could herald an end to a financing drought for many small firms.

"Overall there are some things to like in this release," said David Tinsley, an economist at BNP Paribas. "It suggests that the housing market’s recent decline in activity may be flattening off, while the Gordian knot of falling credit is no longer tightening around the neck of small business."

Unsecured lending to consumers rose by 418 million pounds, about half the increase forecast in the Reuters poll and the lowest increase since January 2013.

The BoE's preferred gauge of money supply, M4 excluding intermediate other financial corporations (OFCs), rose 0.5 percent in June, taking the annual growth rate to 3.9 percent.

Samuel Tombs, an economist at consultancy Capital Economics, noted the three-month annualised rate of another measure - excluding intermediate OFCs and the effects of securitisations - hit its strongest pace in over five years, jumping 4.6 percent.

"But the overall broad money supply measures are still quite subdued and if anything they support the idea that interest rates will rise only gradually," he said.

(Writing by William Schomberg; Editing by Catherine Evans)