MNI POLICY: BOE - Mortgage Interest Rates, Approvals Fall Dec

By David Robinson

     LONDON (MNI) - Bank of England money and credit data showed mortgage

approvals and average interest rates on fixed rate mortgages both fell in

November, highlighting the weakness in demand.

     The following are key points from the data sets:

     --Quoted, or shop window, mortgage rates declined in December, underscoring

the fact that after the 25 basis point Bank Rate hike last August borrowing

costs have declined, not risen. The UK mortgage market is dominated by

short-term fixed rate products. The BOE data showed 2-,3- and 5-year 75%

loan-to-value mortgages all saw their quoted rates fall in December from

November, by 2, 1 and 2 basis points respectively. The 1.73% average interest on

a 2 year 75% LTV mortgage was down from 1.75% in August and on a 3 year 75% LTV

the 1.81% rate was down from 1.82%.

     --Mortgage approvals, a reliable guide to future housing market activity,

have been drifting lower. The 63,793 approvals recorded in December were below

the 63,952 in November and from the previous peak of 67,029 in October last

year. As mortgage rates have dipped these data support the view that demand is

weak.

     --Consumers are not funding purchases through accelerating unsecured

borrowing. Net consumer credit increased stg687 million in December, down from

stg958 million in November and the weakest since March last year. The series

high was stg2.238 billion in January 2005, which demonstrates just how subdued

borrowing now is compared to pre-financial crisis levels.

     --Broad money growth excluding economically irrelevant intra-financial

sector lending continued to expand in December. M4 excluding intermediate other

financial corporations was up 2.5% on the year or 4.3% on a three month

annualised basis - but these again are relatively modest increases.

     --One apparently encouraging factor was that overseas demand for gilts was

strong in December. Net overseas gilt purchases of stg11.960 billion were the

highest since August.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$]