Spring and lower rates boost housing market

The approach of spring and the lowest mortgage rates for 33 years are fuelling an upturn in the housing market, new figures revealed yesterday.


Lenders approved 87,000 mortgages in February, 7,000 more than in January and the highest total for nine months. The value of the loans approved last month was ?8.6 billion, according to the Bank of England, compared with ?7.4 billion the month before.


The market recovery could diminish recession fears, City analysts said.


'[The figures] back up our view that the housing market is enjoying a solid spring recovery,' said Dharshini David from HSBC markets.


'With interest rates low, affordability high and sentiment improving, this sector is likely to see further gains in the coming months - a key reason for believing the economy as a whole will be able to steer clear of a recession.'


HSBC warns that the growing willingness by lenders to grant bigger loans to buyers as interest rates fall could push up house prices.


'If it marks the beginning of wholesale loosening of the constraints on the proportion of income consumers are able to devote to housing, then the implications could be profound,' said Jonathan Loynes of HSBC.


The Council for Mortgage Lenders said the housing market had made a good start in 1999. 'We look forward to a year of steady, sustainable growth,' said director Michael Coogan. Consumer borrowing fell sharply last month, according to the Bank.


Total lending fell from ?1.3 billion in January to ?925 million in February, a lower figure than analysts were expecting. The figures were in line with the falling retail sales figures, according to Ms David and pointed to another cut of 25 basis points by the Bank. 'May is more likely, but you can't rule out a cut in April,' she said.


But while lower borrowing normally points to a slowdown in consumer spending, much of last month's fall was accounted for by households paying back debt. Gross lending actually rose from ?11.4 billion to ?11.7 billion.


'[This is] consistent with recent surveys which showed consumer sentiment continuing to rise,' said Ms David.


Credit card lending rose ?365 million over the month as consumers used plastic to buy sale bargains.


HSBC's Jonathan Loynes said the gloom about prospects had almost evaporated, and that consumers' expectations for the economy and their own finances had returned nearly to their peak in this cycle.