Mortgage approvals on the rise

Mortgage lending by building societies has contracted for fifth month running

The number of mortgages approved for house purchase rose for the fourth month in a row during May as buyers continue to return to the property market, figures show.

A total of 43,414 loans were approved for people buying a home, up marginally from the previous month's 43,191, but 10% higher than in May last year, according to the Bank of England.

But net lending, which strips out redemptions and repayments, dived to £324 million, the lowest figure since the Bank began collecting statistics in this format in April 1993.

The steep drop in net lending is being driven by a fall in the number of homeowners remortgaging, as low standard variable rates and the high levels of equity being demanded by lenders mean many people are better off staying where they are when their existing deal ends.

Only 30,984 loans were approved for people remortgaging during the month, while total advances, which include all types of mortgage lending, were £10.65 billion in May, less than half the £23.81 billion lent during the same month of 2008.

While the net lending figure strips out remortgaging activity, it does include any increase in borrowing by remortgage customers.

But the current financial climate, as well as falling house prices, has made people unwilling or unable to unlock additional equity from their homes when they remortgage.

The record low net lending figure also reflects the house price falls of more than 20% that have been seen since the downturn began, as well as the larger deposits people are currently putting down, both of which are contributing to buyers borrowing less than previously.

Philip Shaw, an economist at Investec, said he was disappointed by the relatively soft mortgage approval for house purchase figures.

The housing market has been showing signs of improving in recent weeks, with several house price indexes reporting price rises, while estate agents have said sales levels are rising.