British mortgage approvals picked up from near record lows in January, the British Bankers' Association said on Monday, indicating an expected slowdown in the housing market may be less severe than some fear.
Many economists expect house prices to fall this year as growth cools in the wake of a global lending crunch, but there is some uncertainty over how much the economy will slow and how far interest rates will need to fall as a result.
Bank of England policymaker Kate Barker said in an interview with a regional newspaper published on Monday that a recession remains unlikely.
The BBA said mortgage approvals rose in January to 44,288 from 42,343 in the previous month, but were still down by nearly a third on a year ago.
Underlying net mortgage lending also picked up, rising 5.2 billion pounds (10.2 billion dollars) last month after an upwardly revised 4.9 billion pound (9.7 billion dollar) increase in December.
January's figure was in line with the previous six month average.
"With credit conditions likely to continue tightening, and the growing expectation that house prices will fall this year, we would still expect to see some further declines in house purchase activity looking forward," said Allan Monks, economist at JP Morgan. "But the rise in the BBA provides some tentative signs that we may be close to the bottom of the current slowing in house purchase activity."
Much of the rise in lending in January came from remortgaging as borrowers honed in on better deals.
"Although house prices and new loans for house purchase, appear to be subdued as the housing market slows, the strength of remortgaging would suggest competition for mortgage business and switching remains high," said David Dooks, statistics director at BBA.
House Prices Fall
However, most housing market surveys still point to a marked slowing this year and the BoE's own mortgage approvals figures have been on the decline for seven consecutive months, hitting a decade low of 73,000 in December.
The next BoE approvals release is due on Friday with analysts expecting a further fall to 70,000 in January.
A separate survey on Monday showed annual house price inflation at a 22-month low in February, with prices falling on the month for a fifth month in a row.
"House buyers are being pressurised by elevated house prices, modest real disposable income growth and the significant overall rise in mortgage rates since August 2006," said Howard Archer, an economist at Global Insight. "While the Bank of England's trimming of interest rates in December and February will help matters, the overall downward impact on mortgage rates has been limited by a lack of funds for lenders and relatively high money market rates, as well as lenders wanting higher margins due to increased risks."
The BoE cut borrowing costs to 5.25 percent this month but is unlikely to follow that up with another cut for a few months yet.
Most economists expect interest rates to fall steadily to about 4.75 percent by the end of this year as policymakers balance surging inflationary pressures against softer economic growth and the dangers of a sharp slowdown.
But the BoE's Barker told the Stoke Sentinel in an interview published on Monday that a recession seemed unlikely.
"We have got this combination of shocks coming from abroad and it's difficult," she said. "We certainly expect a lot of volatility this year. Recession remains outside the main possibilities."