Number of mortgage approvals for house purchase dips

The number of mortgage approvals being made to homebuyers dipped in February according to high street banks, as economists said 2018 was shaping up to be a difficult year for the housing market.

Some 38,120 home loans got the go-ahead for house purchase, compared with 40,031 in January, according to figures from trade association UK Finance.

But re-mortgaging was up slightly, with 28,607 loans in February, compared with 28,327 in January, as households made the most of the low mortgage rates still available.

Commenting on the report, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the latest figures suggested a recent stamp duty cut for first-time buyers had "failed to reinvigorate the market".

He said: "House purchase demand, which has been weakening since mid-2017, is continuing to decline.

"Demand has been very sensitive to the recent modest increase in mortgage rates."

Mr Tombs said mortgage rates would likely rise further over the coming months.

He said: "With demand contracting faster than supply, house prices likely will merely flatline during 2018."

Howard Archer, chief economic adviser at EY ITEM Club, said: "The latest mortgage approvals data do little to dilute the view that 2018 will be a difficult year for the housing market.

"We expect price gains over the year will be limited to a modest 2%."

UK Finance also said consumer spending in February was mainly reflected in the use of credit cards, with outstanding levels of card borrowing growing at a rate of 6.3% over the year, while use of loans and overdrafts continued to fall.

UK businesses' deposits grew by nearly 7% over the previous 12 months, while borrowing over the same period grew slightly by 0.5%.

Within business sectors, manufacturers' borrowing expanded, while that by the construction and property-related sectors contracted.

Eric Leenders, managing director, personal finance at UK Finance, said: "There has been an increase in re-mortgage approvals compared to last year, as borrowers look to lock in to attractive deals amid speculation of further interest rate rises later this year.

"We are also seeing a continuing rise in credit card spending, reflecting the growing number of transactions carried out using cards, while other forms of borrowing such as overdrafts continue to fall.

"Meanwhile real wages continue to be squeezed by inflation, impacting on consumer confidence and retail sales.

"This pressure on household incomes should ease in the coming months, as the effect of the fall in sterling begins to fade and the strong labour market leads to a better outlook for wage growth."

Stephen Pegge, managing director, commercial finance at UK Finance added: "Bank lending to businesses saw modest year-on-year growth in February, driven by investment within the manufacturing sector.

"Credit balances have risen at an even faster rate as companies build reserves in the face of economic uncertainty and its effect on longer term business confidence."