News Column

Mortgage approvals fall to lowest since June 2013

July 1, 2014

Katie Allen,

The number of mortgages approved in the UK fell to the lowest level for almost a year last month, suggesting the tighter lending rules may be taking some of the heat out of the property market.

The Bank of England said 61,707 mortgages were approved in May, down from 62,806 in April and broadly in line with expectations in a Reuters poll of economists. It was the lowest monthly total since June 2013.

Mortgage approval numbers are closely followed by economists as a timely indicator on housing market activity, which some surveys suggest has come off the boil in recent months.

The dip in May approvals follows the introduction of new lending rules in April under the Mortgage Market Review (MMR), which force banks and building societies to undertake tough affordability checks before they grant loans.

The Bank of England has been closely monitoring property prices for signs of a bubble but has so far held off from imposing any of its own forceful policies to rein in the market. Last week its financial policy committee introduced measures that will only bite if house prices rise more than 20% by early 2017.

Paul Hollingsworth, at the think tank Capital Economics said the latest data provided more evidence of the housing market recovery losing steam.

"Given that the Financial Policy Committee (FPC) refrained from introducing any measures to sap the housing market recovery of its current momentum last week, the latest money and credit figures may come as a welcome sign that the housing recovery is losing some steam of its own accord," he said.

"This was the fourth successive fall in approvals, and leaves them at their lowest level since June last year, and 19% below this January's peak."

Rob Wood, UK economist at German private bank Berenberg, said house prices would still shoot up this year even if recent changes by the BoE and the mortgage market review might have a short-term influence on buyers' behaviour.

"After the temporary disruption from tighter regulations has passed, we expect approvals to return to their upward trend and we look for house prices to gain 10% in 2014 and 2015," he said.

The BoE's data on the amount of mortgage lending showed it rose more than expected by 1.99bn in May, the biggest increase since July 2008. Unsecured lending to consumers also rose faster than expected, up by 740m in May, well above forecasts for 600m.

There were some reassuring signs for business groups who have complained that a lack of access to bank loans has been stopping companies from making the most of the economic recovery. Lending to businesses rose by 3.41bn in May, the biggest increase since records began in May 2011.

But the numbers should only get a cautious welcome, said Howard Archer, economist at IHS Global Insight. He pointed out that net lending to small and medium-sized enterprises (SMEs) fell by 152m in May, although that was a much smaller drop than in March and April.

"While a welcome development, it remains to be seen if May's marked increase in lending to businesses is the start of an improving trend. There have been false dawns before," he said.

"With the UK sustaining a decent level of economic activity and prospects currently looking pretty bright, business demand for credit seems likely to pick up appreciably over the coming months. And it is vitally important for sustained, balanced UK growth that all companies who are in decent shape and who do want to borrow whether it be lift investment, explore new markets or generally support their operations can do so, and at a non-punishing interest rate. This applies to all companies, whatever their size."

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Source: Guardian Web

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