DEBT FINANCING. U.K. Mortgage Approvals Hit 20-Month High

Sept. 29 (Bloomberg) -- U.K. mortgage approvals rose in August to the highest in 20 months as borrowing costs at a record low helped provide support to the housing market.
Lenders granted 52,410 loans to buy homes, the most since December 2009, compared with a revised 49,644 in July, the Bank of England said today in London. Economists forecast that approvals would rise to 49,700 from an initially reported 49,239 in July, based on the median forecast of 18 economists in Bloomberg News survey.
The Bank of England kept its benchmark interest rate at 0.5 percent this month, which Nationwide Building Society said today should help support demand for property. Still, it reported that U.K. home prices were little changed in September and said “downside risks” to the housing market have increased due to the economic slowdown.
“Low interest rates continue to provide support for prices by preventing widespread forced sales,” said Robyn Daniell, an economist at Capital Economics in London. Still, “mortgage lending remains at a subdued level. We doubt this marks the beginning of a new trend. Against the deteriorating wider economic outlook, further house price falls are likely.”
Mortgage lending rose by 600 million pounds ($940 million) in August from July, when it increased by 700 million pounds, the Bank of England said. Consumer credit rose by 500 million pounds.
Housing Momentum
The pound was trading at $1.5643 as of 12:08 p.m. in London, up 0.4 percent on the day.
The Bank of England has set its benchmark rate at 0.5 percent since March 2009. Still, the property market has struggled to gain momentum as the cooling recovery, accelerating inflation and government budget cuts weaken consumer confidence. While mortgage approvals increased last month, the reading is only about half the monthly average in the decade to 2007, before the financial crisis struck.
The Bank of England said in a report yesterday based on a survey of lenders that the availability of secured credit to households increased in the three months to early September, as did demand for mortgages. It added that banks “pointed to adverse wholesale conditions as a key factor which might constrain future lending” to households and companies.
Bank Funding
Nationwide Chief Economist Robert Gardner also highlighted the increase in bank funding costs as a possible constraint on housing. Low borrowing costs “should continue to provide support for housing demand, providing the strains in the banking system do not intensify,” he said in a statement today.
Nationwide’s report showed that the average cost of a home rose 0.1 percent in September from the previous month and was down 0.3 percent on the year.
U.K. economic growth slowed in the second quarter and recent indicators of consumer confidence, manufacturing and services have all weakened.
Deteriorating prospects prompted Bank of England official Ben Broadbent to say this week that he was “reasonably close” to joining Adam Posen in voting for more bond purchases at this month’s Monetary Policy Committee meeting. Fellow MPC member David Miles said the argument for more QE is “finely balanced” in an interview published in the London-based Times newspaper yesterday.
A measure of M4 money-supply growth the bank uses to assess the effectiveness of its asset purchases slowed to 2.3 percent in the three months through August on an annualized basis, today’s report said. That compares with a 3.7 percent rate in the three months through July. The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit grantors.
Total M4 fell 0.2 percent on the month in August and was down 0.6 percent on the year, the Bank of England said.

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