Mortgage approvals down fuelling housing gloom

Fears over the state of the UK housing market are on the rise, prompted by the announcement from the British Bankers’ Association that mortgage approvals for September fell 14% compared to August.

Total mortgage approvals for the month of September 2007 for BBA members were tallied at 52,685, significantly down on the 61,051 recorded in August, and weighing in at 27% lower than the same month last year. Indeed, the number of September approvals was at its lowest since 2000. Much importance is placed on the number of UK mortgages advanced in a month as they are a key indicator of the state of the market; a decline suggests that house prices will soon follow the downward trend.

The director of statistics for the BBA, David Dooks said: “Lower amounts of new mortgage lending combined with fewer approved house purchase loans signal a weaker outlook for the mortgage market, especially if loan supply is reduced following the recent financial market difficulties and costs of borrowing remain at current levels.

“There was a small increase in net borrowing during September, alongside a similar increase in overdrafts and loans, but overall demand for unsecured lending continues to remain weak.” He added.

In support of the BBA statistics, a recent survey by the Royal Institute of Chartered Surveyors has highlighted prices falling at their fastest rate in two years. This comes on top of comments from Bank of England Monetary Policy Committee member Kate Barker suggesting that the housing market is overvalued, and could be affected by a shift in people’s perceptions of the market, borne out by the uncertainty in the buy-to-let sector.

Lehman Brothers mortgage expert Peter Newland is anticipating a decline in overall demand for mortgage approval to be reflected in the official figures published by the Bank of England in early November. He expects a drop from the August figure of 109,000 to around 100,000 for the whole market in September. He said: “We expect mortgage demand, as well as other indicators to reflect a further slowing of the housing market in the coming months, to be followed by a sharp slowdown in house price inflation in 2008.

“If we compare mortgages granted in September 2007 to the same time last year, then the amount of mortgages approved has significantly declined, but whether it is just a short-term dip or whether it will bounce back depends on a number of factors, including overcoming uncertainty over house price inflation.”