Interest rates hold steady, mortgage approvals creep up

The Bank of England Monetary Policy Committee has voted to maintain the Base Rate at 0.5%.

This is the first time the Bank has not lowered the base rate in many months; the last drop came in early March, when the committee lowered the rate to 0.5%.

Following this, new data released by the Council of Mortgage Lenders this morning shows that mortgage lending actually rose during February.

There were a total of 24,300 home purchase loans approved in February, compared with 23,400 loans approved during January. The 4% rise has some commentators heralding the first shoots of green in the housing market, but this does not mask the fact that home purchasing activity remains historically low; loans in February totalled only one-third of the average February total between 2002 and 2007.

The report also showed that while first time buyers still remain restricted due to the tight lending criteria most banks and building societies continue to impose. The average deposit required of a first time buyer during February rose to a record 25%.

Meanwhile, remortgaging activity remained low during February.  The total amount of remortgage loans declined by 20% – 35,000 loans in February versus 44,000 in January.  Demand for remortgages is expected to remain low, as borrowers continue to find their lenders’ standard variable rate competitive compared to new loan rates.

Commenting on the report, Michael Coogan, CML Director, said,

“Recent mortgage approvals figures published by the Bank of England show some signs of improvement at the beginning of the borrowing process, although activity is at a very low level historically. We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year.”