Home Loans Fall Record Low

Very bad mortgage lending statistics and a profit warning Bradford & Bingley yesterday underlined the crisis facing the housing market as the credit crunch continues.

The Bank of England said new mortgage approvals in April dropped to a record low, much worse than expected and bringing warnings from economists of a knock-on effect on consumer spending.

B&B, the biggest buy-to-let mortgage lender, said arrears had begun to rise and the bank had slumped £8m into the red after just four months of the year. It said the situation was likely to get worse as more homeowners find it difficult to meet mortgage payments.

Nationwide, UK’s biggest building society also raised its mortgage rates as it tried to rebuild profit margins. Alliance & Leicester also raised its fixed-rate mortgages by between 0.05 and 0.25 of a percentage point.

The stream of bad news from the homelending sector drove the FTSE-100 index down 45.9 to 6007.6 as billions of pounds were wiped off the value of housebuilders, banks and mortgage lenders. Sterling had its worst day for a month, closing down 1% against the dollar. Dealers also blamed the concerns about the wider economy.

Reports show that Bradford & Bingley's problems are largely related to specialist sectors, such as buy-to-let and self-certified home loans for the self-employed. It has been forced to bring in a US-based private equity group as a strategic partner to help shore up its capital base.

The Bank of England data showed a wider malaise in the housing market, with home loan approvals, which provide a good guide to prices in the coming months, falling to 58,000 in April from 63,000 the month before.

The April total is the worst since the Bank's monthly records began in 1999 and marks a drop of almost 49% from April last year. The Bank's figures were also worse than those from the British Bankers' Association, which suggested that lending may have recovered slightly in April.

Nationwide said it was raising interest rates on its fixed-rate mortgages by 0.3 of a percentage point from today in response to higher money market rates. None of its rates is now below 6%.

Matthew Carter, divisional director for mortgages at Nationwide said: “Swap rates have risen significantly in the last few weeks and as a result it has been necessary to increase the rates on our fixed-rate mortgages. While markets remain volatile we can expect to see frequent changes to fixed rates across the industry.”

Financial “swap” rates, which dictate the cost of fixed-rate mortgages, have moved higher as hopes of imminent rate cuts from the Bank of England have been dashed by increases in oil and food prices. The Bank's monetary policy committee meets this week to decide whether rates should stay at 5%.

The Liberal Democrat Treasury spokesman, Vince Cable, said: We are now seeing a massive hangover from the housing boom that was built on a binge of cheap credit. With house prices falling, food and fuel costs rising, and the continuing credit crunch making borrowing less affordable, it is no surprise that the housing market is grinding to a halt."

B&B said arrears on some of its mortgages had risen even though rents have been increasing strongly in many parts of the country. Higher interest rates and the prospect of falling capital values have put off many would-be landlords and pushed B&B's lending down 30% so far this year.

Nationwide reported the biggest fall in house prices in the 17-year history of its survey last week.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: “The 58,000 mortgages approved in April is roughly half the total sanctioned in the same month a year ago. A collapse in transactions of this magnitude has major implications both for consumer spending and a wide range of ancillary industries.”