Mortgage lending at eight-month high

The number of mortgages approved for house purchase rose to an eight-month high during March as activity in the property market showed signs of picking up, figures show.

A total of 31,660 loans were approved for people buying a new home, 5pc more than during the previous month and the highest level since July last year, according to the British Bankers' Association.

The data backs up anecdotal evidence from estate agents that potential buyers are beginning to return to the market ahead of the traditional spring bounce.

But despite the improvement, the figure is still down on the 35,124 mortgages for house purchase that were in the pipeline in March last year, while it is significantly below the 70,000 to 80,000 approvals a month that are considered to be consistent with a stable housing market.

Mortgage advances continued to be subdued in March, with total lending of £7.75 billion, below both February's figure and the recent six-month average of £7.9 billion.

Net lending, which strips out redemptions and repayments, also dropped to a three-month low of £846 billion, well down on March 2010's figure of £2.62 billion.

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The BBA attributed some of the weakness to the fact that households remained focused on paying down debt, leading to people overpaying their mortgages.

The number of loans approved for remortgaging was slightly down on the six-month average at 24,764, but remained up on the levels seen during the first half of last year, as talk of future interest rate rises caused home owners to review their mortgages.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Despite the modest pick up in mortgage approvals reported by the BBA in March, housing market activity is still weak and far from supportive to house prices.

"Mortgage approvals were still down 9.9pc year-on-year in March and were still essentially only just above half the average monthly level of 57,824 seen since 1997. This is consistent with our view that house prices are likely to trend down gradually further over the coming months."

Meanwhile, figures showing that the economy grew by 0.5pc in the first three months of the year make an immediate rise in interest rates less likely, Mr Archer said.

"The GDP [gross domestic product] data not only look to have killed off any prospect for an interest rate in May, but also significantly increase the likelihood that the Bank of England will hold fire for several months to come," he said.

"In fact, we are putting back our expectation for the first interest rate hike from August to November."