Increase in mortgage approvals says London Mortgage Broker, London Mortgage Advice Tuesday, 23rd June 2009

Approvals for house purchases rose to 31,162 in May, up 15.8% compared with the same month a year ago as mortgage approvals by the UK's major banks have continued the steady rise of the last six months, figures show.

Data also shows that borrowing on credit cards has dropped owing to householders' economic uncertainty as various lenders have raised the cost of fixed-rate mortgages in recent days.

Whilst there are rising number of approvals - a signal of future activity in the housing market - the BBA said that the mortgage picture remained subdued overall. The modest recovery in the housing market is in danger of being nipped in the bud

Some experts think that High Street banks were loosening their lending constraints and offering mortgages to people who did not have a large deposit to give.

Others says that consumers' appetite to borrow had been hit by uncertainty over jobs, house prices and the state of the economy in general. This also meant that demand for new loans was contracting, and spending on credit cards was down 11.4% on a year ago. With interest rates still at a record low, the number of people remortgaging has continued to fall. Approvals were down 60% to 24,847 in May as many householders simply stuck with their lenders' variable rates.

With the Bank rate still at 0.5% - Low interest rates were also hitting savings, with the BBA seeing a low level of new deposits being made by customers, who are likely to be searching elsewhere for higher returns. Negative equity stops home moves
However, the capacity of banks to lend remains tight and so this has caused them to put up the cost of home loans.

Nationwide and Barclays announced this week that they were raising the cost of their fixed-rate mortgages. This comes after the cost of inter-bank borrowing led most lenders to raise rates a week ago. The modest recovery in the housing market is in danger of being nipped in the bud," he said.

In a report by ratings agency Fitch has suggested that, owing to falling prices, 23% of borrowers in the UK could face negative equity by the time property values hit their trough.

Negative equity is the situation where someone's house has become worth less than their mortgage. If its peak-to-trough prediction of a 35% drop in house prices was correct, Fitch said that - by value - a third of all home loans would be in negative equity. A separate survey by website Findaproperty.com found that average rents in the UK increased for the first time since August 2008. They went up by 0.5% month-on-month to £823, the research found.