Bloomberg News

U.K. Mortgage Approvals Fell in September Amid Credit Squeeze

October 31, 2011

Oct. 31 (Bloomberg) -- U.K. mortgage approvals fell in September as tighter credit conditions and falling consumer confidence kept more potential property buyers out of the market for home loans.

Lenders granted 50,967 loans to buy homes, down from 52,347 in August, the Bank of England said today in London. Economists forecast a drop to 50,600, according to the median forecast of 20 economists in a Bloomberg News survey.

U.K. house prices fell for a sixth month in October and declines may accelerate in the coming months, London-based property researcher Hometrack Ltd. said today. The Bank of England expanded its so-called quantitative easing plan for the first time since 2009 this month to head off a credit squeeze as a result of Europe’s sovereign debt crisis.

“Mortgage approvals are going to be nudging down over the next few months from the knock-on effect of funding disruptions,” said Amit Kara, an economist at UBS AG in London. “Whether or not the bank does more quantitative easing will depend on the bank funding market.”

Mortgage lending rose by 346 million pounds ($554 million) in September from August, the Bank of England said. Consumer credit increased by 629 million pounds.

Concern that the economic recovery will weaken further has sapped consumer confidence and property demand, Hometrack said. It reported that home values fell 0.2 percent in October from the previous month. A measure of shoppers’ sentiment fell 2 points in October to minus 32, the lowest level in more than 2 1/2 years, GfK NOP Ltd. said Oct. 28.

‘Credit Crunch’

As Europe’s debt crisis worsened in recent months, the three-month pound-denominated London interbank offered rate, or Libor, rose 0.15 percentage point since Aug. 1 to 0.99 percent. European officials agreed last week to a rescue plan to prevent the turmoil in Greece from spreading across the euro region.

All nine members of the Bank of England’s Monetary Policy Committee voted to expand their bond-purchase program by 75 billion pounds to 275 billion pounds on Oct. 6. The bank also kept its key interest rate at a record low of 0.5 percent.

“We could see in part from private discussions with the banks that this was in danger of really starting to impact again on the U.K. economy in terms of a credit crunch,” Bank of England Markets Director Paul Fisher said in an interview last week. “There was sufficient downward momentum in the U.K. economy to justify 75 billion” pounds of QE.

While economic growth in the third quarter probably rebounded from one-time disruptions in the previous three months, underlying activity is weakening and Fisher predicted there is a “50-50” chance the economy will shrink in the current quarter. The Office for National Statistics will publish gross-domestic-product data for the three months through September at 9:30 a.m. tomorrow.

A measure of M4 money-supply growth the bank uses to assess the effectiveness of its asset purchases rose to 4.9 percent in the three months through September on an annualized basis, the central bank said today. That compares with a 3.8 percent rate in the three months through August. The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit grantors.

Total M4 fell 0.4 percent on the month in September and was down 1.7 percent on the year, the Bank of England said.

--With assistance from Mark Evans in London. Editor: Fergal O’Brien

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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