Hawk warns on slowdown as repossessions hit 13-year high
Thursday, 28 July 2005
Print
Email
The slowdown in the housing market has hit consumer spending, one of the "hawks" at the Bank of England said yesterday as figures showed the number of people facing the loss of their home had hit a 13-year high.
Sir Andrew Large, a deputy governor at the Bank and one of the five members of the Monetary Policy Committee who voted to keep rates on hold this month, said the weakness might have changed people's "attitudes" to spending. His comments appear to mark a U-turn by the Bank from its view that the link between house prices and consumer spending had broken down.
It added to speculation the MPC will cut rates next week, after its five-four split vote three weeks ago to keep them unchanged. Only one of the five needs to change their mind to ensure a cut.
Alan Clarke, an economist at BNP Paribas, said: "It is significant to see one of the members who voted for no change in rates in July coming out with 'dovish' comments. It shows a further capitulation in the Bank's line, which had downplayed the relationship between house price inflation and spending."
In an interview with the Cardiff-based Western Mail, Sir Andrew said: "As house prices are not rising significantly, this might be having an impact on people's attitudes. They could be thinking, 'If I cannot rely on the price of my house going up, I might have to be a bit more careful' - translating into lower purchasing."
But he said it was hard to determine whether the slowdown was temporary: "One of the difficulties of consumption is whether it is a permanent shift or not."
There was fresh evidence that rate rises had started to bite. The number of people at the early stages of repossession rose sharply in the second quarter. Court actions entered by lenders rose to 28,476, up 53 per cent on a year ago, the Department for Constitutional Affairs said. The Royal Institution of Chartered Surveyors (Rics) said this was the highest since the third quarter of 2003.
The DCA figures showed repossession orders were 61 per cent higher than a year ago. At 18,330, they were the highest since 1996, Rics said.
The Council of Mortgage Lenders (CML) said the virtually unbroken run of falls in repossessions since a peak in 1991 was over. It said its members repossessed 4,640 homes in the first half of the year, 51 per cent up on the second half of 2004.
The CML stressed the numbers were "very small" compared with a peak of almost 39,000 in the second half of 1991. It said one in 2,500 mortgaged homes was repossessed compared with one in 250 in 1991. Peter Williams, its deputy director general, said: "It now seems the second half of 2004 marked the trough in ... repossessions. A rerun of the early 1990s is certainly not on the cards."
HSBC said the number of new loan enquiries at its branches fell 2.2 per cent this month to take the annual decline to 11 per cent. Mortgage borrowing rose for the first time since April.
Hints of buoyancy in the housing market were reflected in figures from the British Bankers' Association showing a rise in mortgage approvals in June. Approvals - loans agreed but not yet made - hit a 12-month high of 70,750 in June, and were up 5 per cent from May. But they were down 20 per cent compared with June 2004.
