Mortgage approvals at 18-month low

The number of mortgage approvals plunged to an 18-month low last month, underlining weak housing market conditions, according to Bank of England figures.

There were 44,192 approvals for house purchases in June, down from a 25-month high of 50,544 in May and falling 10% year-on-year, the Bank said.

The figures also revealed that repayments on secured loans were ahead of new lending for the first time since June last year, leading to the smallest rise in total lending to individuals - £300 million - in nearly two years.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures showed that "underlying housing market activity is limited" following a jump in first-time buyers looking to complete before a stamp duty concession ended in March.

Lenders are expected to continue a trend seen in recent months of tightening their borrowing criteria and raising their mortgage rates amid the weak economy and the ongoing eurozone crisis, making it tougher for people to take out a mortgage.

The number of approvals for remortgaging also fell back in June, to 24,117 loans worth £3.3 billion, down from 28,567 the previous month.

Mr Archer added that the weak figures reinforced a view that house prices are set to fall in the months ahead. He said: "We expect house prices to end up losing at least 3% from current levels. Furthermore, there is a significant danger that house prices could fall even more than this due to the serious downside risks to the UK economic outlook, both from domestic factors and from the eurozone crisis."

Consumer credit, which includes personal loans, overdrafts and credit cards, increased by £635 million in June, following an increase of £774 million in May.

The Treasury and Bank earlier this month launched an £80 million Funding for Lending scheme, designed to unclog the flow of credit from banks to businesses and households.

But Blerina Urici, economist at Barclays Economic Research, said the new measures would only have a limited impact. She said: "The success of such measures will depend on the take-up by lending institutions, and with one of the major UK banks announcing it will not take part, the degree of participation remains to be seen."