The number of people in the UK taking out mortgages to buy a home rose again in November but the appetite for other loans and overdrafts continued to fall.

The Bank of England figures show that mortgage approvals stood at the highest level since March 2008. There were 60,518 mortgages approved for house purchases in November, up from 57,718 the previous month. But consumers continued to pay back unsecured loans, with consumer credit falling for the fifth month in a row. Although credit card lending rose slightly in November, the lack of popularity of other loans and overdrafts meant that people paid back £376m more than they borrowed during the month.

Recession effect

The repayment of unsecured debts has been seen regularly in the Bank of England figures, reaching £591m in October. This has shown people's reluctance to take out loans for big purchases, such as cars, during the recession because of the lack of security over jobs and the relatively high cost of borrowing.

Consumers collectively paid back £7.85bn in the 12 months to November. The economic climate has also affected the amount people are saving. Building society members took out more money than they saved for the ninth month in a row in November. There was a net withdrawal of £775m, figures from the Building Societies Association (BSA) showed.

Adrian Coles, director general of the BSA, said people had little incentive to save at the moment with interest rates so low. "Many may prefer to use their money to pay down debts, finance spending or invest elsewhere," he said. Competition from the likes of Northern Rock and National Savings & Investments was also hitting the sector, Mr Coles added. "Building societies and other deposit takers continue to face heightened competition from institutions with a government guarantee, which is creating further distortions in the savings market."

Housing views

In the housing market, the Bank of England figures show that mortgage approvals have sped up. "An acceleration in mortgage approvals and higher mortgage lending bodes well for housing market prospects, but it is unlikely to be sufficient to sustain the rapid price increases seen over the second half of 2009," said Hetal Mehta, senior economic adviser to the Ernst and Young Item Club.

"Supply pressures are likely to abate as the price increases encourage more people to put their properties on the market, and with unemployment continuing to rise, demand will remain weak."Lenders have continued to relax their mortgage rationing according to the financial information service Moneyfacts. In the past month the proportion of home loans requiring at least a 25% deposit fell again, from 62% at the start of December to 60% at the start of January.

For most of 2009 the proportion of mortgage deals needing such a large down-payment hovered at around 66%. There has been hardly any change in the number requiring deposits of between 0% and 10%. But the proportion needing a down-payment of 15% or 20% has now gone up to 30% of the total. "The last quarter of 2009 witnessed a number of mortgage providers slightly loosening their credit criteria and making more of their products available to those who can only raise a smaller deposit," said Darren Cook of Moneyfacts. "Although this is encouraging news for first-time buyers who wish to jump on the property ladder during 2010, the halting of the stamp duty holiday will mean that buyers will need to find a little more money to cover the costs," he pointed out.

Remortgaging

The number of people remortgaging remained relatively static in November compared with October, at 24,897, the Bank of England said. This was still down on the average of the previous six months as people continue to stick with their lender's standard variable rate at a time of low interest rates. Net lending, which strips out redemptions and repayments, hit the level seen in February having increased for the third month in a row to stand at £1.46bn.

Source: news.bbc.co.uk