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Nine-month low for home loan approvals: Drop may be effect of more rigorous finance checks Recovery shifting towards manufacturing - experts

June 3, 2014

Hilary Osborne

The number of mortgage approvals has fallen to a nine-month low in a sign that tough new affordability tests for housebuyers are having an impact on the housing market. Approvals fell for a third month running in April, according to figures from the Bank of England, with the introduction last month of new rules on lending thought to be behind the drop.

Anyone applying for a mortgage must now submit three months of bank statements which will be checked line by line to ensure that the borrower can withstand higher interest rates.

The seasonally adjusted figures showed that a total of 62,918 house purchase loans were approved during April, the lowest number since July 2013 and markedly below the previous six months' average of 70,132. Coupled with strong manufacturing data for May, one analyst said the figures showed that the UK economy was undergoing a hoped-for rebalancing away from housing and consumer-dependent growth to an industry-based model.

"The data has provided more encouraging evidence that the recovery is shifting away from its excessive dependence on housing and consumers towards industry," said Samuel Tombs, UK economist at Capital Economics.

However, housing experts said it was too soon to tell if the tests brought in by the mortgage market review (MMR) will have a permanent dampening effect on the market. Figures published last week show a still-vibrant market, with house prices in England and Wales rising 6.7% in April compared with the same month last year, according to the Land Registry.

Experts said the spectre of the MMR, brought in by the Financial Conduct Authority, had at least had a short-term effect. Many lenders introduced the new tests before the MMR came into force on 26 April, and were bedding in systems and training staff for several weeks, resulting in fewer appointments and applications.

"The new MMR regulations have temporarily slowed lending in the market," said Richard Sexton, director of e.surv chartered surveyors. "Borrowers must now prove that they can withstand potential interest rate rises up to 7%, as well as answering a host of detailed questions about future finances. But the slowdown has also come from the supply side. Lenders have invested time training staff and implementing lengthier advisory meetings, which has capped their capacity to process applications."

The slowdown over the spring means that in April mortgage lending to homebuyers was 17% below its recent peak of 75,838 in January. Remortgaging has also dropped off since the start of the year, with 31,703 loans approved for existing borrowers who were not moving, compared with the previous six-month average of 34,316.

The total value of mortgages approved fell to pounds 15.7bn in April, down from pounds 16.3bn in March, while loans for house purchases dropped from pounds 10.6bn to pounds 10bn.

"This strongly suggests that the introduction of the MMR has at least temporarily taken some of the steam out of housing market activity," said Howard Archer, chief UK economist at IHS Global Insight. "It is evident that some banks raised their mortgage lending standards before the new regulations kicked in."

Matthew Pointon, property economist at Capital Economics, said the recent falls in approvals were "something of a puzzle" as they came against a backdrop of rising employment and low interest rates.

"While the rules should prevent a return to the lending practices that characterised the previous credit boom, in themselves they are unlikely to lead to a cut in mortgage approvals - after all, most lenders were already being careful about who they lent to," said Pointon.

However, he added that surging house prices could also have reduced appetite from borrowers. "House prices are simply too high to support a steady rise in demand, particularly now that mortgage rates are beginning to edge up." Economists said that until it became clear whether the slowdown was temporary or MMR had subdued the market, there was still a chance that the Bank could step in.

George Monbiot, page 31 =


The figures showed that 62,918 house purchase loans were approved during April, the lowest number since July 2013 Photograph: Dominic Lipinski/PA Wire

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Source: Guardian (UK)

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