Mortgage approvals down by a fifth


Published: Tuesday 23rd December 2014 by The News Editor

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The number of mortgage approvals made to home buyers slid by a fifth in November compared with the same month last year as a “sharp chill” set into the housing market, banks have reported.

Some 36,717 approvals with a collective value of £6 billion were recorded for house purchase last month, marking a 20% fall on November 2013 and the lowest monthly total since April last year, according to figures from the British Bankers’ Association (BBA).

But experts predict that this falling trend could come to an end soon. The BBA’s latest figures are for the period just before the Autumn Statement, during which the Government announced a complete overhaul of stamp duty.

The move, which has ended the old “slab” structure of the duty in favour of a graduated version of the tax, has led some commentators to suggest the housing market could be set for a recovery in the new year as more people will feel encouraged to move.

Under the new stamp duty system, unveiled earlier this month, a home buyer will only pay the rate of tax on the part of the property price that falls within each tax band, in a similar way to income tax, meaning the majority of people who are liable to pay the duty will pay less than they would have under the old rules.

Meanwhile, consumer borrowing using credit cards, overdrafts and personal loans continued to grow at the fastest rate in six years, reflecting an easier borrowing climate and improved household finances, the BBA said, adding that this “bodes well for a fruitful Christmas for retailers”.

Annual growth in this type of unsecured or non-mortgage borrowing is running at 3.1%, the highest rate since late 2008.

People have also piled more money into their Isa savings over 2014 than the previous year.

A total of £12 billion was pumped into Isas in the 12 months to November, a surge of nearly 38% on the same period a year earlier. Isas have seen a net inflow of £8.6 billion in the last five months.

At the start of July, the rules surrounding Isas were relaxed, enabling people to stash more cash away tax-free and giving them more flexibility over how they invest their money. People can now save all of their £15,000 annual Isa allowance in cash if they want, or all in stocks and shares, or keep it in any combination of the two. Previously, only up to half of the annual Isa allowance could be saved in cash.

The BBA’s figures showed that borrowing by non-financial companies shrank in the year to November by £14.2 billion. The BBA said much of this fall was due to the real estate sector, while the manufacturing, wholesale and retail sectors saw “positive and sustained borrowing growth”.

Richard Woolhouse, the BBA’s chief economist, said: “Today’s figures show quite a sharp chill to the housing market in recent months – with house purchase approvals during November 20% lower than a year before.

“It will be interesting to see what impact the stamp duty changes the Chancellor unveiled in his Autumn Statement will have early in the new year. They could prove a modest stocking filler for home buyers and estate agents.

“It’s also striking to see that unsecured borrowing such as personal loans are growing at their fastest rate for six years. This suggests consumers may be feeling more confident which bodes well for a fruitful Christmas for retailers.”

Matthew Pointon, a property economist at Capital Economics, said mortgage approvals are likely to at least level off, and may start to recover early next year.

He pointed out that lenders had been coming to terms with stricter lending rules which came into force earlier this year, but now that they have got to grips with them they should start to feel more confident in raising lending volumes.

Mr Pointon also highlighted the fact that mortgage rates have been declining in recent months as expectations about exactly when the Bank of England base rate will start to increase from its historic low of 0.5%, pushing up borrowing costs, have drifted further into the future.

He said: “The reforms to stamp duty will lead to an effective cut in the tax rate for homes sold for under around £1 million, which will boost both transactions and house prices.

“And earnings growth is finally starting to recover. That should help raise the confidence of both potential buyers and mortgage lenders.

“Overall therefore, the conditions appear to be in place for a gradual recovery in mortgage lending in 2015.”

Published: Tuesday 23rd December 2014 by The News Editor

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