Sterling tumbles amid growing fears of hung Parliament

Sterling plummeted to a nine-month low against the dollar today and could
tumble further, analysts warned, as fears mounted that the general election
could result in a hung parliament.

Sterling fell 2 per cent to $1.4943 at one point, its lowest since early May.
It also plunged against the euro, to €1.0991, its lowest since the end of
November.

Investors' concern was fuelled by weekend opinion polls indicating that a hung
parliament looked more likely. They fear that the lack of a clear majority
in the House of Commons could lead to political deadlock over a solution to
the country's ballooning debt problems.

“Sterling is in trouble and we suspect it will fall further in the coming
weeks,” analysts at Barclays Capital said.

Investors were also unsettled by a fall in the number of home loans granted in
January, which triggered fears that a recovery in the housing market is
waning.

Figures from the Bank of England showed that the number of mortgage approvals
for house purchase, seen as an important indicator of housing market health,
fell by 17 per cent in January to a nine-month low, hit by poor weather and
the end of the stamp duty holiday.

The figures increased speculation that house prices could fall again this year
and further stirred worries about the health of the economy.

The drop in the number of home loans, from 58,223 to 48,198, takes them well
below the 70,000-to-80,000 level of approvals that Global Insight, the
economics research group, believes is consistent with stable house prices.
Economists had not been expecting such as steep fall, with 50,000 the
average forecast.

Although the amount lent to homeowners rose from £1.2 billion to £1.5 billion
between December and January, the total number of mortgages approved,
including remortgaging, fell by 14.9 per cent, from 111,453 to 94,845 over
the month.

Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club, said: "The
decline in approvals for the second month in a row adds to tentative
evidence from house price surveys that the recent mini house price boom may
be running out of steam."

Adrian Coles, director-general of the Building Societies Association, said:
“Although it is not possible to compare lending figures in January to
previous periods, it is evident that activity was subdued and this has been
felt by all lenders.

"Low activity in the month was expected following the surge of buyers
aiming to beat the end of the stamp duty relief in December. The adverse
weather conditions experienced at the start of the year have further
suppressed market activity.”

It is thought that hundreds of buyers brought forward their purchases at the
end of last year before the lowest threshold for 1 per cent stamp duty fell
from £175,000 to £125,000.

Meanwhile, housebuilders reported that visits to sites were down during the
snowiest weeks of the month, which they said had forced homebuyers to delay
purchases.

Mortgage brokers were optimistic that better loan criteria from banks would
help February's figures to show an increase. Brian Murphy, the head of
lending at the Mortgage Advice Bureau, said: "The mortgage market
picked up sharply in February, driven by a wider range of new products
coming on to the market.

"Product availability is up by around 30 per cent since the beginning of
the year and lenders are starting to compete at higher LTVs [loan to value].

"Lenders are still very conservative in their criteria but overall the
environment for borrowers is much improved on six months ago."

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