Competition is a good thing, so the break-up of Britain’s rescued banks, announced last week, should be a positive move for the housing market. Although nothing is imminent, the disposals approved by the European commission will increase choice. Lloyds TSB-HBOS has a mortgage-market share of about 30%, so the split should be beneficial, and has been lauded by Which? and other consumer groups.

Marrying the proposed break-up with the Financial Services Authority’s regulatory reforms, it seems clear that the mortgage market of the future will look different. Competition is not all one way — in the past couple of years, smaller building societies have been absorbed by bigger competitors — but there is the prospect of new players.

The key issue remains: will there be enough mortgage capacity to support reasonable activity in the housing market? The big picture on approvals for house purchase is that they are still rising. The Bank of England’s latest monthly figure (for September) was 56,215: up by 68% on the same time last year, and more than double the November 2008 low.

That has been enough to support the rising house prices of recent months, perhaps surprisingly. Halifax reported a 1.2% increase in October, a fourth consecutive monthly rise. Prices are up by 2.9% since the end of 2008 and by 7.1% from the April 2009 low. Yet approvals remains well below pre-crisis norms. In all bar one month from January to June 2007, they were more than double the latest figure.

The drop in mortgage activity — despite the recent recovery — is even more striking when you look at all approvals, including remortgages. At just under 110,000 a month, it is barely more than a third of pre-crisis levels.

So this is not merely a question of competition in the mortgage market; there is the important issue of how much lenders can lend. Nobody expects a return to the levels of the first half of 2007, but a proper recovery in the housing market requires considerably more lending than now. And it is not clear we are going to get it.

* Average price falls of 6.6% are likely in the property market next year, as the backlog of pent-up demand that has brought recent growth is gradually eroded, while supply increases and economic growth remain weak. In its market forecast last week, Savills estate agency said that a gradual return to house-price growth is expected once the economy starts to recover and unemployment falls — with a probable 2.7% rise in average prices in 2011, steadily growing to 5.5% in 2015.

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