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UK mortgage lending plunges by 60%

Mortgage lending dived by more than 60% during March as activity in the housing market remained subdued, figures showed today.

Net lending, which strips out redemptions and repayments, totalled just £374 million during the month, well down on February's £950 million and January's £1.71 billion, according to the Bank of England.

The subdued level, which was the lowest figure since net lending contracted by £366 million in December, is likely to reflect a combination of the stagnant housing market and the fact that homeowners are taking advantage of low interest rates to pay down their debt.

There was a further slight pick-up in the number of mortgages approved for house purchase in March, with these rising to 47,557, the highest level since November last year.

But the figure is still down on the 48,967 loans which were in the pipeline in March 2010, and significantly below the 70,000 to 80,000 a month that economists consider to be consistent with a stable housing market.

The data comes as Nationwide Building Society said house prices fell by 0.2% during April, leaving property values 1.3% lower than they were a year ago.

It was the third time in six months that prices have fallen, and the group warned that it expected property values to continue to move sideways or "drift modestly lower" through 2011.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Although there are signs that housing market activity has edged off its lows recently, it is still at a very weak level that historically has been associated with falling house prices.

"The renewed fall in house prices reported by the Nationwide in April is consistent with our view that house prices will trend down gradually overall through the rest of 2011 and, very possibly, the early months of 2012 as tighter fiscal policy and the likelihood of gradually rising interest rates before the end of 2011 pressurise the housing market."

Samuel Tombs, UK economist at Capital Economics, said: "March's UK household borrowing figures suggest that activity in the housing market remains at a very low level.

"While the Bank of England's measure of mortgage approvals for new house purchase rose from 46,700 to 47,600 in March, that rise only took approvals back to the level seen in November.

"What's more, even though activity has picked up a bit, house prices are still broadly stagnant."

The number of loans approved for people remortgaging fell slightly in March, dropping to 32,116 from 35,567, although they were still 23% higher than a year earlier, as high inflation during March led to predictions that an interest rate hike could be imminent.

Unsecured borrowing remained subdued, with credit card, loan and overdraft debt rising by just £108 million during March, compared with a jump of £784 million in February.

Building societies continued to see their share of the mortgage market fall during March, with net lending contracting by £476 million, according to the Building Societies Association (BSA).

It was the 27th consecutive month during which existing customers repaid more than was advanced in new mortgages, as the sector struggles to raise funds in the current difficult market conditions.

But mutuals approved mortgages worth £2.1 billion during the month, up on £1.7 billion in both February and March 2010.

Adrian Coles, director-general of the BSA, said: "There was a significant rise in the value of mortgages approved by mutuals in March.

"Indeed, across the first quarter of 2011 mortgage approvals by mutuals were 28% greater than in the same period a year earlier.

"However, these are increases from very low levels, and compared to previous times activity in the mortgage market remains subdued."

The level of savings people held with building societies fell during the month, dropping by £604 million, as withdrawals outstripped new deposits for the eighth time in the past year.