BoE: Mortgage lending dropped in April

Mortgage lending fell between March and April, according to the Bank of England's latest Trends in Lending report.

The Bank of England said while total mortgage approvals for house purchase increased slightly in March, data from the major UK lenders indicated their approvals for house purchase edged lower in April.

Some major UK lenders also reported downward pressure on mortgage pricing due to increasing competition to lend.

Gross mortgage lending for house purchase in April was similar to March, having weakened in 2010 Q1 but the value of remortgaging fell.

The major UK lenders reported credit availability had not changed significantly during the past month, however estate agents continue to report the lack of mortgages has dampened demand for houses among first-time buyers.

The BoE said despite the increased numbers of products at LTV ratios between 75% and 89%, the proportion of loans actually advanced at these high ratios remains the same as Spring 2009, according to the Home Finance Forum data set.

However, the brighter news for homeowners is mortgage prices are at their lowest level since records began in 1995, although two-year fixed mortgage rate for 90% LTV products are largely unchanged.

Lenders also reported competition in the market was on the up and, putting some downward pressure on mortgage pricing.

Howard Archer, senior economist with IHS Global Insight, said this data does little to dilute belief the housing market is finding it difficult to regain momentum after flagging at the start of 2010.

"Still muted mortgage approvals in April reinforces our suspicion that house prices will struggle to make significant gains over the coming months," says Archer.

"Although it may have picked up modestly from its early-2010 lows, housing market activity is limited, economic fundamentals (high unemployment, still falling employment, low earnings growth and looming tighter fiscal policy) are far from robust for the housing market, credit conditions remain pretty tight, and house price/earnings ratios have moved back up."

He adds: "There are also growing concerns that the Bank of England will have to raise interest rates before the end of the year due to higher-than-expected inflation.

"Furthermore, if household confidence suffers from widespread significant doubts about the stability and longevity of the Conservative-Liberal Democrat coalition governments, this could impact negatively on the housing market."

Archer said the Stamp Duty holiday will help first-time buyers over the next two years on all properties costing up to £250,000 but that overall house prices are likely to be erratic.

He adds: "Indeed, we would not be surprised if they were only flat overall through the rest of 2010."