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U.K. Mortgage Approvals Near 6-Year High; House Price Growth Accelerates

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U.K. mortgage approvals increased to the highest level since February 2008 as banks lend more to housing, siphoning away funds from lending to businesses, given the strong confidence in the property market on the back of government scheme.

Moreover, house prices registered the strongest growth since July 2010, flagging fears of housing bubble. Both reports released Friday substantiate the decision taken by the Bank of England to scrap the Funding for Lending scheme for mortgage lending.

Mortgage approvals for house purchases rose to 67,701 in October, the most since February 2008, from 66,891 in September, the Bank of England said Friday. However, the number of approvals was below the expected level of 68,500.

Highlighting the imbalances in lending to business and households, data showed that new business lending declined GBP 1.1 billion, which was down 3.3 percent from the prior year. Loans to small and medium-sized companies decreased by GBP 505 million.

The BoE yesterday said the Funding for Lending Scheme that was originally launched in August 2012, will continue to provide support for lending only to businesses in 2014. Household lending will no longer earn any such additional borrowing allowances.

Looking ahead, even after yesterday's tweaks to the FLS, a gradual recovery in lending continues to look likely, Samuel Tombs, an economist at Capital Economics said.

House prices increased 6.5 percent year-on-year in November, after rising 5.8 percent in October, data published by Nationwide showed. The November growth was the biggest since July 2010.

Month-on-month, house prices rose 0.6 percent, but down from October's 10 percent increase.

Housing market activity is gaining momentum from the economic upturn, low interest rate and improvement in the labor market market.

Policy measures aimed at keeping the cost down and improving the availability of credit are also playing an important role, Nationwide's Chief Economist Robert Gardner said.

BoE Chief Mark Carney clarified yesterday that the central bank does not have a veto on the Help to Buy scheme. But it can make recommendations at any time.

House prices look set to see further strong increases over the coming months, and they could very well see another marked rise in December even though the decision by the BoE and the Treasury to end FLS for mortgage lending could take some froth out of the market.

Another report from the BoE showed that M4 money supply rose 0.1 percent on a monthly basis following September's 0.5 percent rise. Likewise, the annual growth for M4 slowed to 2.4 percent from 2.5 percent in the prior month.

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