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Mortgage approvals fall to new record low

29/09/2008

UK mortgage approvals fell to a new record low in August as the housing market slumps further.

Data from the Bank of England show there were 32,000 mortgages approvals for home purchase in August, down from 33,000 in July. Some 64,000 remortgage deals were confirmed.

Mortgage approvals are now 75 per cent below the peak.

Paul Dales, UK economist at Capital Economics explained the fall in mortgage approvals was consistent with a 25 per cent fall in house prices.

He also was unconvinced the raising of the stamp duty threshold in September will have much affect.

"It is possible that the suspension of stamp duty for properties costing less than £175,000 at the start of September will support approvals in the coming months. But we are not convinced," he said.

"Why would households borrow to buy an asset that might soon be falling in price by around 25 per cent per year?"

The Bank of England figures also showed unsecured lending – on credit cards, personal loans and overdrafts – rose.

August's net unsecured lending rose £1.2 billion – up from £1.1 billion in July.

However, Mr Dales claimed this was not due to increased consumer confidence.

"Declining real incomes and rising unemployment may mean that some households are having to resort to credit to finance their day-to-day expenditure," he said.

The Building Societies Association (BSA) also revealed society gross lending amounted to £2.7 billion in August 2008 compared to £4.3 billion in August 2007.

Andrew Gall, BSA business economist, said: "Activity in the housing market remains depressed, so, although the figures for both net approvals and net lending are better than for last month, they still remain low.

"With the Land Registry data showing a 4.6 per cent annual drop in property prices, and with BSA's own Property Tracker survey showing that more than half of people consider the prospect of future falls in house prices a barrier to house purchase, it is hardly surprising that demand for mortgages is so low."

Building society net receipts – the amount people are saving – also fell to £0.7 billion in August 2008 compared to £1.4 billion in August 2007, although last year mutuals saw a massive influx of cash as Northern Rock stumbled.