Mortgage approvals hit year low

31 May 2007

The number of new mortgage approvals in the UK has fallen to a 12-month low, according to the Bank of England.  Mortgage approvals totalled 107,000 in April, down from 111,000 in March.  It’s the third monthly decline in a row.

And mortgage lending rose by £8.9 billion, which was much less than expected and the weakest rise since September – in a further indication of weakening buyer demand.

Analysts say that the Bank of England – which sets interest rates – will be comforted by today’s news, which shows that its policy of raising rates is taking effect.  And with a further interest rate rise of 0.25% looking likely, consumer lending may cool further.

In the past few years, very low interest rates have encouraged consumers to take on a mountain of debt – which now stands at £1.5 trillion.  However, the Bank has raised interest rates four times since the beginning of August last year, which has begun to put pressure on many households’ finances. 

Interest rates went up to 5.5% last month and city analysts are widely predicting another rate increase before August.  They’re warning that interest rates could even hit 6% by the end of the year.