ROOF Blog

The number of mortgages approved for house purchase fell for the third month in a row during February as the housing market continued to show signs of slowing down, figures revealed today. A total of 47,094 loans were approved for people buying a home during the month, 21% down on the recent peak reached in November last year, according to the Bank of England. However, the Bank’s figures also showed a rise in unsecured lending during the month, with consumers taking on more debt through credit cards, personal loans and other forms of credit than at any time for 15 months.

Both the CML and the Bank of England agreed that mortgage lending edged up again in the last months of the year, against the usual seasonal downturn. The CML reported that gross mortgage lending reached an estimated £13.7bn in December, up 14 per cent on November. A rush of sales before the end of the stamp duty holiday and the prospective hike in VAT accounted for much of the improvement.

The recession’s toll on consumers will be laid bare today as Bank of England figures show that nearly a third of workers have had their household income drop by at least £1,200 a year amid soaring unemployment, shorter working hours and pay freezes.

About 30 per cent of manual workers and 27 per cent of office workers said that their disposable income – money left to spend each month after paying tax, housing costs, utility bills and loan payments – had fallen by £100 or more over the past 12 months, according to the Bank’s ‘Quarterly Bulletin’.

A member of the Bank of England’s interest rate setting committee has called for the introduction of a tax on housing that would act as an ‘automatic stabiliser’ to help avoid real estate bubbles like the one that helped to cause the financial crisis.

Adam Posen, an American academic and external member of the Monetary Policy Committee, countered suggestions that central banks should have been quicker to raise rates in the run up to the crisis, arguing that tighter monetary policy would have had little effect in halting bubbles.

Citing the greater damage caused by housing slumps than by collapses in prices of other assets such as equities or commercial property following booms, Mr Posen proposed that new tools need to be created in order to target the residential real estate market in particular.

Britons repaid debt for a fourth consecutive month in October and at the fastest pace on record, the Bank of England said.

The Bank also released other data showing the money supply is still contracting in spite of £200bn of quantitative easing.

People paid off nearly £600m of unsecured debt such as overdrafts and credit cards last month – three times as much as City pundits had expected – and twice the repayment rate of September.

The figures show that the UK’s build-up of up to £228bn of unsecured debt in the decade before the credit crunch has now gone firmly into reverse, although since July consumers have only repaid £1.3bn of that total.

The figures also showed that new mortgage approvals inched up to 57,300 last month from 56,200 in September but remained well below the long-run average.

Banks were today accused of profiteering from homeowners during the recession, as it emerged that the average interest charged on variable-rate mortgages is 4.2 per cent higher than the Bank of England’s base rate.

The average Standard Variable Rate mortgage now charges interest rates of 4.7 per cent, down only one per cent over the past year – when the base rate fell by 2.5 per cent. Vera Cottrell from consumer watchdog Which? said the variable rate market was ‘raising serious concerns’.

She said: ‘Lenders are getting away with charging very high mortgage rates right now, many have an incredibly high margin between base rate and the interest being charged. That’s offering consumers a poor deal.’

The immediate prospects for Britain’s economy are grimmer than in any previous forecast and output is unlikely to revert to pre-crisis levels before 2011, the Bank of England said in a stern warning yesterday.

Presenting the Bank’s quarterly Inflation Report, the Governor, Mervyn King, was at pains to stress that, while the economy might soon return to modest growth, that was not necessarily a cause for ‘bunting and celebration’.

The fall in GDP of about six per cent had been severe and the ‘prolonged period of balance-sheet adjustment’ now beginning would hold back growth, Mr King said, adding that output was ‘unlikely, at least for a considerable period, to return to a level consistent with a continuation of its pre-crisis trend’.

The economy, he said, had ‘only just started on the road to recovery’ and the Bank believed that inflation was ‘on balance more likely to be below the target than above it for most of the forecast period, though by the end the risks are broadly balanced’.

The Governor of the Bank of England, Mervyn King has called for big banks to be broken up, in a speech to business leaders in Edinburgh. He suggested that ministers’ refusal to hive off the ‘casino’ investment arms from High Street banks could lead to a crisis ‘even worse than the one we have experienced’. And he warned that rapid increases in the national debt meant Britons would be paying to clear up the mess ‘for a generation’. His intervention came as official figures revealed public borrowing soared to a record £77.3 billion in the first six months of the financial year - the highest half-yearly figure since the Second World War.

The Bank of England (BoE) has kept the cost of borrowing unchanged at 0.5 per cent for the fourth month in a row. It added it was not planning to extend its quantitative easing scheme.

The newest member of the Bank of England’s monetary policy committee David Miles has said the worst of the recession and housing slump is probably over. He said his ‘hunch’ was that expectations in the housing market look a bit better now than a few months ago and that we have seen most of the ‘overall aggregate’ house price falls. However, he added that Britain is set for an ‘anaemic’ recovery with little chance of returning to buoyant growth in the short term.