Property loans in the UK still declining with a subdued outlook unlikely to change, according to industry experts

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Loan approvals fell in February from the Bank of England

Property loan approvals fell in February, the third monthly decline in a row marking a continued slow start to the year in the UK real estate market, according to the latest figures.

The number of mortgages approved for house purchases dipped by just over 1,000 to 47,094, the figures from the Bank of England show. This comes on top of a sharp drop the previous month when the end of the stamp duty holiday hit the market.

According to Simon Rubinsohn, Royal Institution of Chartered Surveyors chief economist the weaker trend is in part a response to the rush to push through house purchases before the end of last year to take advantage of the stamp duty holiday. The particularly poor weather in the early part of 2010 may have also contributed to the disappointing level of activity in the first two months of this year but he expects things to change.

‘This trend is likely to be at least in part reversed over the coming months helped both by the budget announcement of a stamp duty holiday for first time buyers as well as a continuing pick up in instructions from vendors. Lack of mortgage finance and uncertainty stemming from the approach of the general election will remain a drag on activity but our suspicion is that mortgage approvals will still climb back above 50,000 per month during the spring,’ he explained.

Indeed lending is extremely low in historical terms, according to the Council of Mortgage Lenders which expects activity to remain subdued due to uncertainty over the economic and political outlook. But senior economist Paul Samter said the new stamp duty exemption for first time buyers on properties up to £250,000 is likely to boost activity in the coming months, although it is extremely difficult to assess how many potential buyers will qualify and what the impact will be.

Meanwhile a warning has been issued that government debt could put hundreds of pounds onto the average annual mortgage bill. If the Government continues to run a 12% budget deficit the average annual property loan bill could increase by up to £1,400, it is claimed in a new report.

An extended period of deficit at 12% of GDP could be expected to add more than 2% to government bond rates. The effect of this would be for the costs of funds for banks will rise, and this rise passed on to mortgage holders, according to a report from think tank the Policy Exchange.

The report argues that, whilst it has not yet filtered into wider general consciousness, there is a large body of economic evidence suggesting that reducing government borrowing would lead to higher growth, even in the short term.

‘If the Government continues to run a 12% budget deficit is the reality for the man and woman on the street is that they could find their annual mortgage bill going up in the region of £700 to £1, 400,’ said Andrew Lilico, Policy Exchange’s chief economist.

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