Slowing UK Housing Mkt Puts Consumer Sector At Risk
(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)
Britain’s property market cooled further in August and households have already begun to extract less cash from their homes, data showed on Monday, suggesting the consumer sector could be in for a bumpy ride.
The number of mortgages approved for house purchase — a leading indicator of the housing market — fell to a four-month low in August, according to Bank of England figures. Mortgage lending grew by its weakest amount in more than a year.
Separate data showed housing equity withdrawal, a driver of consumer spending over the past two years, fell to 10 billion pounds in the second quarter, the weakest reading in almost two years.
As a percentage of income, housing equity withdrawal amounted to 4.5 percent of post-tax income, its lowest level since early 2005.
“Reduced housing equity withdrawal is likely to add to the increasing pressure on consumer spending already coming from higher interest rates, modest real disposable income growth and increased debt levels,” said Howard Archer, chief UK economist at Global Insight.
Rising house prices in recent years have encouraged Britons to refinance home loans to free up cash for other spending.
This source of funding now looks at risk as tighter credit conditions and the near-collapse of Northern Rock bank (NRK.L: Quote, Profile , Research) in September are likely to exacerbate the housing slowdown in the next few months.
POINTING DOWNWARDS
The Bank of England said mortgage approvals fell to 109,000 in August from 115,000 in July. This was the lowest reading since April.
“We think there will be a further decline in September as a freeze on subprime lending feeds into these figures,” said Peter Newland, economist at Lehman Brothers.
Other areas of the economy are also suffering. A survey on Monday showed that growth in Britain’s manufacturing sector slowed more sharply than expected last month, while another showed financial services firms have become more gloomy about future profit growth than at any time in the past 17 years.
British interest rates have risen five times since August 2006 but most economists believe they may soon be cut to shore up growth.
Consumer confidence fell to its lowest in almost two years following the Northern Rock crisis, a survey showed last week, while the Britannia Building Society said home repossessions were already ticking up.
“Although official retail sales figures have so far held up well, we are likely to see a softer period of household consumption in the coming months,” said Philip Shaw, chief economist at Investec.
