One of the most important drivers of the UK's property market is borrowers' access to credit.
In essence, the more money people can borrow, the more they'll spend on houses. As long as first-time buyers can get cheap mortgages and homeowners can remortgage their property, house prices will stay high.
But if this starts to change, prices will fall.
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So the latest lending data from the Bank of England looks supportive of house prices. Both the number of loans approved, and their total value, grew in July compared to the month before.
However, if you take a closer look, the picture is far less rosy. There is also plenty of other evidence to suggest that banks are in fact quietly making it harder, not easier, to take out loans. Here's why things still look ugly for UK property.
Lending was up on the month but has slid on the year
Three groups measure mortgage approvals: the British Bankers' Association (BBA), the Council of Mortgage Lenders (CML) and the Bank of England (BoE).
Of the three, the BoE data is the most reliable. Unlike the BBA data it covers the whole market. Also, in contrast to the CML data, it is seasonally adjusted (so it accounts for the fact that more houses are sold at certain times of year than others). It also contains a lot of detail that the other two series don't include.
In June, the total value of new mortgages fell by 11% in one month to £10.6bn. While July's data show an increase in both the number of approvals and the total value, this was far less than June's fall. Indeed, July's lending figure of £10.9bn is still among the weakest seen in the past 12 months.
The total number of approvals tells a similar story. The July figure of 88,363 was up on June's 83,604. However, it was still 9% less than May's figure. More worryingly, it's the second-lowest figure seen since records began in 1998.
Compared to last year, the total number of loans was down 14%, while the total value was down 8%. In other words, the overall picture is very weak.
Banks are cutting back on deals and raising rates
And it doesn't look like things will pick up. Comparison website MoneySupermarket.com reckons that lenders are cutting down on the number of deals on offer. The number of mortgages requiring only a 10% deposit, has fallen by over a quarter during the last year.
The number of 95% loan-to-value deals has fallen even more plunging by 43% in six months. Overall, the number of products available to first-time buyers has dropped by 31% since this time in 2011.
The reduced supply of loans is not the only sign that banks are trying to lower their exposure to property. Even those who can get a loan may find that they end up paying more. The BoE data shows that banks are continuing to raise rates on the loans that they do approve. The average effective rate on new fixed loans went up in July for the eighth successive month to 3.21%, while the overall rate is higher than it has been for a year, at 3.82%.
Judging from recent activity, August's figures will be even higher. Nationwide, the largest lender in the UK has hiked rates on new mortgages. This will make fixed rate mortgages 30 basis points (0.3%) dearer, while tracker mortgages will go up by 0.2%.
Santander, another significant player, is going further. Its standard floating mortgage will be going up by 50bps to 4.74%. It has also hinted that these rates could go even higher in the near future.
The fact that banks are cutting back is especially significant given the pressure that they are under to lend more. Indeed, Matthew Pointon of Capital Economics suggests that, far from boosting lending, the BoE's attempts to link banks' access to cheap capital to mortgage loans (via the Funding for Lending' scheme) may be masking the true extent of the collapse. Indeed, he now thinks that the best-case scenario is for lending conditions to stay the same, rather than for a loosening.
All in all, it's another clear sign to stay away from the property market. After all, if the banks are so worried about further falls in house prices that they are willing to risk criticism from the government and the Bank of England, something is clearly wrong.
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