Tuesday, November 30, 2004

House price crash unlikely as mortgage lending slows




Western Mail

FEARS of a housing market crash have calmed after figures from the Bank of England showed an easing rather than a full-scale drop in activity.

Economists said the data suggested an all-out collapse was unlikely and the market was levelling out after an adjustment over the summer.

The number of loans approved for house purchase in October was 83,000, compared with the average of 94,000 in the three months to September, the Bank of England reported.

Total lending to individuals grew by £9.1bn or 0.9% in October, £0.1bn weaker than the increase in September.

Secured lending grew by £7.5bn or 0.9%, in line with the increase in September. Gross advances were £0.8bn weaker at £23.1bn.

The value of all loans approved was £21.1bn, £0.6bn weaker than in September and £1.9bn weaker than the average in the three months to September.

David Page, economist at Investec, said, "Figures for mortgage lending and approvals - which give us a feel for what will happen over the next few months - eased again, but only modestly.

"The housing market has slowed but there is no evidence to suggest a collapse and the adjustment over the summer now appears to have ended. It looks like we are seeing some levelling out and we shouldn't see a collapse - the figures are down, yes, but not significantly so."

Consumer credit growth was also weaker last month, growing by £1.5bn or 0.9% in October, £0.1bn weaker than the increase in September, the Bank of England said.

John Butler, economist at HSBC, said, "The slowdown has been rapid but the level of approvals is only back to that last seen in January 2000.

"The risk is that if the slowdown in activity levels continues at its current pace, house prices are likely to fall sharply.

"However, if they stabilise around current levels, which are in line with the historic average, then house price inflation is likely to slow sharply but it would not be indicative of outright price falls."

"The message is simply that household borrowing is still rising, but just rising at a slower pace than earlier in the year. Total personal borrowing is still 13.6% higher than a year earlier.

"Overall it is clear that mortgage activity is slowing sharply and that raises parallels with the early 1990s period but then again the market has already incorporated that information."

4 Comments:

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