2017.06.2710:33:00UTC+00UK Mortgage Lending Likely To Recover On Supportive Interest Rates

UK mortgage approvals should begin to gently recover by the end of this year on the back of supportive interest rates and a little stronger economic backdrop in the second quarter, Hansen Lu, a property economist at Capital Economics, said.

The number of mortgages approved in May totaled 40,347, data from the British Bankers' Association showed Monday. That was down by 0.8 percent compared to the 40,686 seen in April. On a yearly basis, approvals dropped 3.3 percent.

The economist noted that May's decline in mortgage approvals is consistent with the broader picture of housing market stagnation.

Lu also observed that the weakness in lending was driven by several factors. Firstly, rising inflation has squeezed real income of households and the market is still characterized by a shortage of homes for sale.

"And perhaps most importantly, house prices are very high - discouraging some buyers and pricing others out of the market entirely," the economist pointed.

The PMI data for May suggested a strong GDP growth in the second quarter after a lackluster result in the March quarter.

Besides this, with unemployment at a record low and jobs growth ticking along, the labor market has held up well, the economist said.

"While the MPC struck a surprisingly hawkish tone at its latest meeting, it will likely be some time before a rate rise becomes a majority view," Lu said.

As both new buyer enquiries and newly agreed sales are still falling, mortgage approvals will be weak for a little longer, the economist added.

"That said, with the economic backdrop improving and mortgage rates set to stay supportive, some improvement in approvals can be expected by the end of the year," Lu predicted.