Mortgage demand 'collapsing' as approvals hit record low » Bill payments » 24dash.com

The number of mortgages approved for people buying a home hit a record low during March as the credit crunch continued to limit the supply of funds available, figures showed today.

Just 64,000 loans were approved for people moving house during the month, 44% fewer than in March 2007 and the lowest figure since the Bank of England began to collect data in April 1993.

Approvals were down across the board, with 10% fewer mortgages of all types in the pipeline than during the previous month.

Only 98,000 home loans were approved for people remortgaging, down from 109,000 in February, while loans for other purposes, such as equity release and buy-to-let, were 10% lower than in the previous month.

The value of mortgage approvals also slumped to a near 13-year low of £24 billion.

Mortgage figures are being hit by the double impact of the cooling housing market and lenders tightening their criteria as a result of the credit crunch.

But while loans for house purchase were expected to be subdued due to potential movers delaying a purchase until the outlook for the market is clearer, the 1.4 million people coming to the end of short-term fixed-rate and tracker deals were expected to support remortgage levels.

Vicky Redwood, UK economist at Capital Economics, said mortgage demand was collapsing.

She said: "March's household borrowing figures show that, after a brief period of stabilisation, mortgage approvals are tumbling again.

"What's more, credit conditions are still tightening - with Nationwide the latest lender to require a minimum 10% deposit.

"The Bank of England's Special Liquidity Scheme, if it works, might stop things getting much worse. But lenders will remain cautious."

Howard Archer, chief UK and European economist at Global Insight, said: "The bad news on the housing market just keeps on coming.

"March's very weak Bank of England data is yet further evidence that housing market activity is being severely hit by the damaging combination of stretched buyer affordability and very tight lending conditions."

Unsurprisingly, given the weak approvals figures in previous months, the value of mortgages advanced during March was also subdued.

Gross lending continued its downward trend, totalling £26.73 billion, down from £28,402 in February.

Net lending, which strips out redemptions and repayments, fell to its lowest level since December 2004, rising by just £6.93 billion.

It had been hoped that the Bank of England's £50 billion liquidity scheme would help to ease the problems in the mortgage market.

But a week after the initiative was first announced, mortgage rates are continuing to rise and lenders are still tightening their loans criteria as banks digest the complex scheme.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The news that mortgage approvals dropped to a record low of 64,000 is hardly surprising given that lenders have been aggressively scaling back on the provision of finance to home-buyers."

He added that it was unlikely that the bottom of the cycle had yet been reached.

Today's figures from the Bank also showed that unsecured lending had returned to normal following a spike in February.

Credit card debt increased by £369 million during the month, in line with February's rise, while borrowing through loans and overdrafts rose by £868 million - less than half the previous month's jump.

Meanwhile, building societies continued to benefit from the turbulence in the financial sector, with people increasing their savings levels with mutuals by £1.26 billion during March, according to the Building Societies Association.

The figure is 70% higher than for March last year and the highest level for the month on record.

The BSA said building societies received 70% of their funding from the retail market, and the high levels of savings they were attracting meant the problems in the wholesale markets were having less impact on them.

Adrian Coles, director-general of the BSA, said: "Building societies have never relied on wholesale funding to the same extent as many other lenders, and these substantial saving inflows indicate that building societies are less exposed to the restricted availability of wholesale funds than other lenders."

But the sector did see a sharp fall in mortgage lending during the month, with net lending nearly halving to £580 million, compared with £1.02 billion in February, while it was two-thirds lower than in March last year.

The value of mortgage approvals was also 42% lower than a year earlier at £3.01 billion.

Mr Coles said: "Lending at building societies was down year on year. This is partly due to building societies withdrawing products and increasing rates on new lending so that they do not become overly competitive.

"Furthermore, this may also be due to a greater level of uncertainty in the housing market causing prospective buyers to hold back until the direction of house prices becomes a little clearer."