Jan
4
New Mortgages Lowest Since September 1995
Filed Under Mortgages
The number of mortgages approved across the UK has fallen sharply to its lowest level for nearly a decade, adding further evidence that house prices may not just cool but could turn decidedly cold.
The Bank of England (BoE) today said that mortgage approvals fell to just 77,000 in November, down dramatically from a revised 85,000 in October and the lowest number since September 1995 when 74,000 loans were approved.
Mortgage lending rose by £6.46bn in November, from £6.93bn, the lowest growth since June 2002 and a near 7 percent decline. Growth in unsecured lending, which includes personal loans and credit cards, has also fallen back. Unsecured lending rose by £1.38bn in November, compared to £1.51bn in the previous month, more than 8 percent reduction in lending growth.
Grim Reading
These numbers make grim reading for the BoE, the housing industry, retailers, the general public as a whole and homeowners in particular.
The BoE’s figures echo the recent reports from various mortgage lenders that the housing market slowed in December and could stall completely in the New Year.
“It looks like demand in the housing market has weakened and it’s going to continue weakening,” said George Buckley, an economist at Deutsche Bank.
In fact, house prices have declined for three of the past four months, according to HBoS PLC, the UK’s biggest mortgage lender. 2005 could actually be a negative year for house prices, something which has not happened for a decade.
James Knightly, an economist at ING Financial Markets, was more direct saying that house prices could fall by as much as 10% during 2005.
The Only Way Is Down
The news of lower mortgage lending had an immediate impact as the pound weakened against other the US dollar and other currencies, a sign that the markets expect that the next move by the BoE will be to lower interest rates and will be sooner than everyone thought.
The BoE has raised interest rates five times since November 2003, taking the base rate from a 48-year low of 3.5 percent to the current 4.75 percent in an attempt to curtail the British desire for debt.
“The latest MPC minutes suggest that the committee is starting to react to the weaker data, which could see a 0.25 percent cut as early as the spring”, said Knightly. Though Buckley does not see rates being cut until the second half of the year.
For now the BoE is expected to stay their hand and wait for more data. With December’s mortgage lending figures expected to be weak too, attention will no doubt be turned to house prices, retail sales and consumer spending in general. Whenever the BoE does act it is clear that, for interest rates and house prices, the only way is down.
