The number of mortgage approvals made by lenders for September fell 10% on the previous year, representing a 14 month low in mortgage lending activity in a clear indication that the housing market is undergoing its greatest slowdown in recent times.
According to the British Bankers’ Association (BBA), there were 39,271 home loans approved in September, down 2090 on August and well below the 42,589 average for the previous 6 months.
Net mortgage lending rose at its slowest monthly rate since the start of the year, and the average approval value fell by £3500 to £157,700 from August to September.
The slowdown follows tighter lending criteria and general cooling measures enforced by the Bank of England, namely those specified in April’s Mortgage Market Review, which necessitated prospective borrowers to undergo rigorous ‘stress-tests’ to test whether they could afford repayments in the event of an interest rate hike.
Lenders have adhered to this criteria and would-be borrowers are commonly subjected to routine checks on their incomings, outgoings and employment situation, and as such a natural slowdown in lending activity followed. However, many within the industry consider lenders to have sufficiently adapted to these tightened regulations and as such, borrowers’ disinclination to engage in the housing market could be behind the unswerving decline in mortgage approvals.
Howard Archer, chief UK economist at IHS Global Insight, said: “The fact that mortgage approvals are substantially below their January peak levels – and are currently falling – after lenders have now likely got to grips with the new mortgage regulations points to an underlying moderation in housing market activity.”
He added: “With housing market activity well off its early-2014 highs, we suspect house prices will generally rise at a more restrained rate over the coming months. Specifically, we expect house prices to rise by around 1.0% quarter-on-quarter in the fourth quarter of 2014. We see house prices rising by around 5% in 2015.”
Foremost amongst the growing number of disengaged borrowers are first-time buyers, on whose custom a significant proportion of the UK’s housing recovery has been founded upon. Yet, subjected to falling real wages, inflationary pressure and low interest rates on savings accounts, this group are ailing in their attempts to save for a deposit.
Richard Sexton, director of e.surv chartered surveyors, lauded the impact of Help to Buy on synthesising demand in areas across the UK, “enabling worthy, responsible borrowers – many of whom are being held back from the property market by the economic downturn – a chance to get onto the ladder regardless.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Mortgage approvals for house purchases fell nearly ten per cent year-on-year in September, clearly reflecting the slowdown in the housing market. While the market may be taking a breath, now is a very good time indeed to get a mortgage.
“The mortgage market review slowed applications down and lenders are playing catch-up before the end of the year. They also want to create a strong pipeline for 2015.
“Swap rates are very low and are driving record low fixed-rate mortgages. Margins are tightening as lenders compete for business, preferring to cut rates rather than ease criteria and offer more flexible underwriting. Some borrowers will therefore still find it tough to get a mortgage, particularly if they require interest only, are an older borrower or are self-employed.”
Gross borrowing via unsecured loans has increased, reflecting enhanced consumer confidence and willingness to splurge on substantial investments such as home improvements or a new car. However, savers have shown reluctance to invest in NISAs, with the total poured into the Coalition’s flagship savings account this year almost £2bn below the £11bn seen by September in 2013.
Richard Woolhouse, chief economist at the BBA, said: “A year ago there were many of us who were concerned by the heady pace of property price rises. Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing.”