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Thursday, 31 May 2007

U.K. Home-Loans

U.K. Home-Loans Drop as Credit Reaches Decade-Low (Update3)


By Svenja O'Donnell
May 31 (Bloomberg) -- U.K. mortgage approvals fell and consumer credit dropped to the lowest in a decade in April, a sign higher interest rates are deterring Britons from borrowing.
Lenders granted 107,000 loans for house purchases, the lowest in a year and down from a revised 112,000 in March, the Bank of England said today in London. Borrowing by consumers on credit cards, personal loans and overdrafts fell to 498 million pounds ($983 million), the least since March 1997.
``We'll see these numbers continuing to fall off,'' said Michael Taylor, an economist at Lombard Street Research in London who formerly worked at the Department of Trade and Industry. ``That will be evidence that monetary policy is working.''
The report suggests consumers may be reluctant to add to their record 1.3 trillion-pound debt burden after the Bank of England raised interest rates to a six-year high of 5.5 percent to cool inflation. A separate report from Nationwide Building Society today suggested the pace of house price gains may be slowing.
Investors are betting on a further quarter-point rate increase in the third quarter to bring inflation down to the 2 percent target from a decade-high in March.
The implied rate on the September interest-rate futures contract fell 0.01 percentage point after the report to 6.04 percent at 10:41 a.m. in London today. The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade.
Mortgage Lending
The number of home-loan approvals was last lower in September 2005. Today's result was less than the 110,000 median forecast of 20 economists in a Bloomberg survey. Net mortgage lending was 8.9 billion pounds last month, the least since September.
Weaker demand for mortgages is adding to evidence that housing market gains are slowing. Home values rose 0.5 percent this month after gaining 0.9 percent in April, Nationwide Building Society said today.
The rate of house-price inflation seems to be slowing, Bank of England Policy maker David Blanchflower said yesterday. The pace of gains ``has been a concern'' to the central bank and previously ``appeared to be unsustainable,'' he said.
Still, a shortage of homes is driving prices higher in some parts of the country. Asking prices for a London home rose 25 percent in the past year to 385,199 pounds ($765,000), Rightmove Plc, the U.K.'s biggest real-estate Web site, said May 21.
Consumer spending growth is starting to show signs of weakening on higher borrowing costs, after slowing to 0.6 percent in the first quarter from 1 percent in the previous three months. Retail sales unexpectedly declined for the first time in three months in April.
Today's report suggests consumers were more reluctant to add to their record borrowings with unsecured lending. Net consumer credit fell as lending on personal loans and overdrafts dropped to 442 million pounds, the lowest since August 2000. Credit-card lending rose 57 million pounds, the least since January.

**original source = bloomberg**

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