UK mortgage approvals rose to their highest level since January 2012 last month, suggesting the Funding for Lending Scheme (FLS) may be starting to raise the amount of money being lent to home buyers.
This was above analysts' expectations and the highest figure since last January, when the imminent end of a government incentive for first-time home-buyers boosted demand.
Net mortgage lending increased by £1.036bn, the largest amount since April (Paris: FR0004037125 - news) , and interest rates on new secured loans to households fell to their lowest since April as well.
The Bank of England has been hoping that the Funding for Lending Scheme - introduced in August - would boost the flow of credit to households and businesses and support an economy now perilously close to a "triple-dip" recession.
Rates offered on fixed-rate mortgages have fallen sharply in recent weeks. Yorkshire Building Society has become the latest lender to launch a 1.99 per cent two-year fixed-rate mortgage. Even on a five-year fixed rate mortgage, rates are now as low as 2.79 per cent, with Britannia. Last year, the best five-year deal was around 4 per cent.
Experts have suggested that as the effects of the FLS continue to filter through the best two-year fixed rate could fall as low as 1.5 per cent .
While analysts said the increase in mortgage approvals was a positive sign, Howard Archer, economist at IHS Global Insight, said: "Mortgage approvals remain low compared to long-term norms - at 55,785 in December.
"Specifically, mortgage approvals have averaged 85,648 a month since 1993, while a level of 70,000-80,000 has in the past been considered consistent with stable house prices."
While the FLS may be helping to lower mortgage rates, evidence of benefit for businesses was less clear in the figures, though one measure of lending to firms posted its smallest annual percentage fall since November 2011.
Before the 2008 financial crisis, monthly mortgage approvals ran at around 90,000, but the number of home sales has slumped since then and the property market has largely ceased to be a major driver of consumer spending.
Last week similar data from the British Bankers' Association showed a tick up in mortgage approvals in December, although they were 4pc down on the year.
Overall net household lending rose by £1.685bn after stagnating the month before. Within that, unsecured consumer lending rose by £649m, the biggest rise since September and a much stronger increase than forecast.
A quarterly BoE survey found that British banks planned to increase the supply of mortgages in early 2013 after a record rise in the availability of this type of credit in the three months to December. The poll also pointed to an improvement in terms on which loans are extended.
Last week, research from Halifax suggested that mortgages were at their most affordable level in a decade, thanks to cheaper borrowing rates and lower house prices.
Mortgage payments absorbed 28 per cent of a new borrower’s disposable income in the final quarter of last year, according to its analysis. At its peak in the third quarter of 2007, the proportion was 48 per cent.
However, the cheap deals remain out of reach for many would-be homeowners due to the banks’ larger deposit requirements.
Average mortgage rates are near record lows of 3.38 per cent at the moment, according to the Bank of England, and house prices are 10 per cent below their 2007 pre-crisis peak. As a result monthly mortgage payments have fallen to just £580, which compares with the average monthly after-tax wage of £2,062, the Halifax said.
Today, Lloyds TSB (LSE: LLOY.L - news) became the latest lender to cut rates, although the reductions do not make the deals the best on the market in the most competitive areas of two and five year fixed mortgages.
On two-year fixed deals, those with a 40 per cent deposit will now be offered 2.79 per cent, down by 0.15 per cent, or 4.04 per cent, down from 4.34 per cent, for those with 20 per cent to put down.
Last week Lloyds Banking Group committed to lend £6.5 billion to help customers make their first step on to the property ladder in 2013. The pledge is expected to help around 60,000 people buy their first home by the end of the year.
Stephen Noakes, mortgages director at Lloyds, said: “Whilst the property market is likely to continue to be challenging, we remain committed to getting things right at the start of the chain, creating liquidity in the housing market and helping more people get on to, and move up, the property ladder in 2013. These major rates cuts to our mortgage products should provide real support to customers.”
• What's your story? Tell the author at firstname.lastname@example.org