The mortgage market in the UK picked up some steam once again in September, according to data reported this morning by the British Bankers' Association (BBA). The number of new mortgage loans approved for home purchase was 70,105, up 17% from the amount in September 2004. Loans for refinancing -- known as remortgaging in the UK -- were 72,485, up 3.2% from a year ago and the largest number since March 2004.

These BBA data cover "major British banking groups", a subset of all UK mortgage lenders accounting for about 70% of total volume. Complete data on new and outstanding mortgages will be reported Monday, October 31 by the Bank of England. But the BBA figures are a good indicator of the overall direction and magnitude of this activity. As seen in the first chart, this activity has picked up dramatically in recent years, giving this sector added attention in the markets. Indeed, this data set was added to Haver's UK database some months ago in response to British clients' requests for more extensive mortgage market coverage. We also carry the corresponding BOE tables and the Council of Mortgage Lenders' monthly survey.

As with mortgage lending in the US, the UK market is quite interest-rate sensitive -- perhaps even more so, since mortgage loans are generally shorter than those in the US. The key BOE base rate shows an 89% correlation with the net change in mortgage loans outstanding since 1995. This rate was at its recent lows in 2003 and mortgage lending was strong. As rates rose from late 2003 through the middle of 2004, lending slowed; the number of loan approvals fell steeply for both purchase and refinancing. Subsequently, and especially after the BOE's rate cut in August, the number of approvals and the net change in loans outstanding have picked up once again.