Mortgage approvals fall 10% to their lowest in 18 months

By CLAIRE SMITH
Published on 30/07/2012 21:42

MORTGAGE approvals plunged to an 18-month low last month, Bank of England figures showed yesterday, underlining weak housing market conditions.

The number of approvals for house purchase in June was 44,192, down from a 25-month high of 50,544 in May and falling 10 per cent year-on-year, the Bank said.

The latest figures also reveal repayments on secured loans were ahead of new lending for the first time since June last year, leading to the smallest rise in total lending to individuals– £300 million – in nearly two years.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures showed that “underlying housing market activity is limited” following a jump in first-time buyers looking to complete before a stamp duty concession ended in March.

Lenders are expected to continue a trend seen in recent months of tightening their borrowing criteria and raising their mortgage rates amid the weak economy and the ongoing euro-zone crisis, making it tougher for people to take out a mortgage.

Financial analysts predict that banks will continue to be wary of lending – because of fears that they still have to weather the full impact of the crisis in the eurozone.

The number of approvals for re-mortgaging also fell back in June, to 24,117 loans worth £3.3 billion, down from 28,567 the previous month.

Mr Archer added that the weak figures reinforced a view that house prices are set to fall in the months ahead.

He said: “We expect house prices to end up losing at least 3 per cent from current levels. Furthermore, there is a significant danger that house prices could fall even more than this due to the serious downside risks to the UK economic outlook,

both from domestic factors and from the eurozone crisis.

Meanwhile, although mortgage interest payments as a percentage of disposable income are currently very low, other affordability measures are not so favourable with the house price/earnings ratio above its long-term average.”

Consumer credit, which includes personal loans, overdrafts and credit cards, increased by £635m in June, following an increase of £774m in May.

The Treasury and Bank of England this month launched an £80m Funding for Lending scheme, designed to unclog the flow of credit from banks to businesses and households.

But Blerina Urici, economist at Barclays Economic Research, said the new measures would only have a limited impact.

“The success of such measures will depend on the take-up by lending institutions, and with one of the major UK banks announcing it will not take

part, the degree of participation remains to be seen,” she said.

“The Bank of England data reinforce our belief that house prices are likely to trend lower over the rest of 2012 and very possibly beyond in the face of limited activity, low and fragile consumer confidence, muted earnings growth and relatively high unemployment.

“We expect house prices to end up losing at least 3 per cent from current levels.”