UK January Mortgage Lending Growth Slows On Weather, Land Tax

10:10 23Feb10 UK January Mortgage Lending Growth Slows On Weather, Land Tax

LONDON--Net growth in mortgage lending by U.K. banks slowed in January due to several factors including home-buyers pushing sales through in December before the end of stamp duty relief, while wide-spread heavy snowfall also likely kept the number of would-be home buyers to a minimum, data from the British Bankers Association showed Tuesday.

The BBA added that a change to bank reporting practice, and the
reorganization of Northern Rock "raised difficulties in measuring transactions in January," which also affected the monthly data.

Seasonally adjusted net mortgage lending grew just GBP2.7 billion in January. That was the lowest increase since July 2009 and compared with a GBP3.3 billion rise in December.

The December figure was revised from an originally estimated increase of GBP3.5 billion.

A year earlier lending grew GBP3.1 billion, the BBA said.
The outlook for the housing market deteriorated in January as mortgage approvals--a good forward-looking indicator for housing market activity--totaled 35,083 in January. That was the lowest level of approvals since May last year and was below the 45,897 total reported for December.

"It was no surprise to see the January mortgage figures falling back from December, when transactions were being pushed through to beat the end of stamp duty relief," said David Dooks, statistics director for the BBA. "There was a natural reaction in the January figures and the bad weather further suppressed market activity," he said.

Stamp duty is a U.K. land tax payable on properties costing above a certain amount. In 2009, the Labour Government raised the threshold as part of a raft of measures intended to limit the housing market slump. These changes came to an end Jan. 1, 2010, when stamp duty reverted back to pre-recession levels.

The U.K. housing market made a surprising recovery in the second half of 2009, and while house-price surveys for January have shown that this pickup continued in the first month of 2010, Tuesday's mortgage lending data strongly suggest that the continued rise in prices is likely due to a severe shortage of desirable properties.

While house prices are expected to rise further over the next few months, several commentators say that once the U.K.'s general election is over, the housing market is likely to slow again as tax rises and government spending cuts are introduced.

The BBA also reported that gross mortgage lending growth slowed in January, rising just GBP8.0 billion after a GBP10.9 billion increase in December.

Unsecured consumer remained subdued in January as net credit card lending rose just GBP0.3 billion, up from a GBP0.2 billion increase in December. Personal unsecured loans and overdrafts posted a net repayment of GBP0.3 billion in January compared with the GBP0.4 billion repayment reported a month earlier.

"After the Christmas period, demand for consumer credit was weaker in January, as people shied away, or were discouraged by the weather, from retail spending and held on to their deposits," Dooks said.

Lending to non-financial firms was also weak with companies making a net repayment of GBP3.9 billion in January, "as demand for finance remains subdued and trading conditions are still adversely impacting on business sentiment," Dooks said.

In December non-financial firms made a net repayment of GBP1.7 billion.