Mortgage lending jumped 19% in February, giving hope that the property market might now begin a slow recovery. However, the latest figures must be treated cautiously as lending remains at less than a third of the level at its peak in mid-2006.
Increased lending
Statitistics just published by the Bank of England show that 37,937 home loans were approved in February this year, up from 31,791 the month before. The Council of Mortgage Lenders believes this is a positive indicator.
Paul Samter, the CML's economist, says: "February's approvals for house purchase were nearly a fifth higher than in January and marked the first material improvement in approvals since mid-2008. This is welcome news, but we will need to see a few more months' figures before we can say with any confidence that market conditions are showing a fundamental improvement. Transactions remain historically very weak and this makes it harder than usual to adjust the figures for the normal upturn that happens in the spring."
Building society lending down
Mortgage lending by building societies actually declined in February. Gross lending was £1,214 million, down from £1,570 million in January. Both figures are way below the comparable months of a year before - £3,861m in February and £4,088m in January 2008.
The decline in lending by societies in a month when total mortgage lending increased implies that banks are taking a greater slice of the mortgage market away from building societies. HSBC is particularly keen to take market share.
There are also signs of consumers becoming keener to pay-off debt and to save, rather than take out new loans. Consumer credit fell by £200m in February, the Bank of England's monthly statistics show.
Further signs of financial stress were revealed by credit reference agency Equifax, which reported that 55% of the population have suffered a loss of 20% or more in disposable income so far in 2009 - despite the falling base rate and mortgage rates.
Savings up
Meanwhile, building societies reported a big increase in total savings, with net receipts in February of £1,595m - 18% up on the figure for February last year. Societies say they are keen to keep savings rates as high as possible, above the levels of the Bank of England base rate, to attract savings and protect the incomes of vulnerable savers. By building up savings levels now, building societies are putting themselves into a stronger position to increase the availability of mortgages in future months.
Brian Morris, head of savings policy at the Building Societies Association says: "The record February net receipt of £1.6 billion shows that building societies' attractive savings products are helping them to compete for deposits. Despite the bank rate being so low people are still keen to save, probably in response to the uncertain economic outlook and reduced job security."
His colleague, Paul Broadhead, head of mortgage policy at the BSA, adds: "The low levels of lending by building societies come as no surprise in view of the depressed levels of activity in the housing market. With the BSA's Property Tracker survey showing that potential buyers remain concerned over their job prospects and perceived problems securing a mortgage, it is hard to see confidence returning to the property market for some time to come."
'House prices to fall further'
This view is shared by Nick Hopkinson, director of Property Portfolio Rescue, who also argues that while the latest Bank of England figures are good, it is important not to read too much into them. He suggests that the level of new mortgage lending is consistent with a continuation in falls in house prices, given that there were 44% fewer new mortgages approved in February this year compared to a year before.
"The faltering UK economy and soaring unemployment over the remainder of 2009 will result in many thousands more repossessions this year and further price falls," Hopkinson predicts.
Despite this gloomy analysis, it seems that investors are returning to the property market, sensing that house prices could now be near the bottom. The latest figures from the Association of Residential Letting Agents show a doubling in the number of landlords buying homes to rent out.
But with the conflicting statistical information, it remains a difficult market to predict over the coming months.