•  Submitted by 07/01/09 , Click: , Source: insurance news net

    Hopes of a recovery in Britain's battered housing market were dealt a setback today when new data for May revealed a weaker than expected number of mortgage approvals and the lowest rise in lending on record.

    A total 43,414 mortgages were approved in May, just up from 43,191 in April, the Bank of England said. Analysts had expected a figure closer to 46,000.

    In a further illustration of the continued fragility of the market net mortgage lending during May rose by just £324 million, a third of the level in April and a tenth of the amount loaned at the same time a year ago. The increase was the weakest since records began in April 1993.

    The figures follow a growing body of evidence pointing to a recovery in the housing market.

    Last week, figures from the British Bankers' Association revealed the number of mortgages approved for house purchase rose to a 13-month high in May.

    It said a total of 31,162 loans were approved for people buying a property, 7 per cent more than in April.

    Last week also the Council of Mortgage Lenders reduced its forecast for the total number of repossessions in 2009 from 75.000 to 65,000.

    The reduction, it said, reflected the benefits of lower interest rates, government intervention and forbearance by lenders in cases where borrowers are struggling with repayments

    Though today's figures were weaker than expected the rise in mortgage approvals was the fifth in six months and economists said evidence continued to suggest the housing market was recovering.

    Howard Archer, chief UK and European economist at IHS Insight, a consultancy, said: "The further, but limited rise in mortgage approvals in May adds to now widespread evidence that housing market activity is trending up gradually."

    The data, he said, suggested that while buyer interest is picking up "this is only gradually translating inot increased house sales."

    Rising unemployment, muted wage growth and an unwillingness of many people to committ to buying due to uncertainity about the economic outlook, suggested that a pick-up in actual house purhases would remain slow for some time to come, he said.

    Recently published data from the Land Registry indicated that house prices have begun to stabilise with a modest 0.2 per cent decline in May, bringing the average price to £152.497.

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