UK residential mortgage approvals rise but remain at low levels

Mortgage approvals for house purchase by the UK's big high street banks rose more than expected in October but remain fairly depressed, according to data released by the industry on Thursday.

The British Bankers' Association said mortgage approvals rose to 40,851 in October from 38,690 in September, also above the consensus forecast of 39.0k.

This was the second successive monthly increase from August’s 19-month low of 37,521 to what is a five-month high.

Year on year, the BBA data showed house purchase approval numbers were 10% lower and in the first ten months of 2016 were 4% lower than in the same period of 2015.

Economist Howard Archer at IHS Markit said the October data tied in with other indications that housing market activity has improved modestly from the lows seen around August, pointing to figures from the surveying industry that buyer enquiries for houses rose for a second month running in October - albeit modestly - after falling for six months running through to August.

"With housing market activity coming modestly off its recent lows and the economy currently resilient, house prices look likely to rise modestly in the near term," he said.

However, as increasingly pressure arrives in 2017 from deteriorating fundamentals for households and heightened uncertainty, Archer said he suspect house prices "will come under increasing pressure as 2017 progresses and may edge down over the year, possibly by around 2%".

Sam Tombs at Pantheon Macroeconomics said approvals numbers will struggle to rise further in the near-term, given that mortgage rates will start to edge up soon, with swap rates having rebounded over the last two months and now are back at pre-referendum levels.

"In addition, the impending stagnation of households’ real incomes, driven by soft employment growth and high inflation, suggests that mortgage approvals will remain depressed next year. On top, changes to the tax treatment of mortgage interest payments for buy-to-let investors in April will dampen lending too."