Page last updated at 14:13 GMT, Monday, 30 June 2008 15:13 UK

New low for UK mortgage approvals

Bank of England
Mortgage lending hit a new record low in May, the Bank says

The number of new mortgages being approved for house purchase in Britain has dropped heavily for another month.

The Bank of England said 42,000 home loans were approved in May, a 28% fall compared with the previous month and 64% down on a year ago.

This is the lowest since the Bank began reporting the figures in 1993 and lower than many analysts' predictions.

Mortgage lending has slumped owing to the credit crunch with institutions reducing their willingness to lend.

The number of home loans approved have now fallen for 13 consecutive months, the Bank's figures show.

Housing market

Philip Shaw, chief economist at analysts Investec, described the figures as "terrible".

The implications of this is that the market is going to remain pretty weak for some time with a significant downward movement in house prices
Ed Stansfield
Capital Economics

"It is really symptomatic of what is going on the housing market. The real danger is there is a knock-on effect to consumer activity," he said.

Recent figures from the British Bankers' Association (BBA) on the number of new mortgage approvals to home buyers also showed a big drop, by 20% in May compared with April.

It blamed tighter lending criteria and a squeeze on household finances for the drop. BBA members account for about two-thirds of total UK mortgage lending.

The Council of Mortgage Lenders and the Royal Institution of Chartered Surveyors have warned that property sales this year would fall by between 35% and 40%.

The Land Registry revealed last week that the number of house sales slumped by 50% in March compared with the same month in 2007.

'Change in attitude'

The Bank of England figures also showed a drop in the number of mortgage approvals for homeowners who were remortgaging.

Houses for sale in Macclesfield
House price figures for June will be revealed in the next few days

That figure fell to 90,000 in May, down from 100,000 the previous month and below the monthly average over the previous six months of 104,000.

Mortgage lending as a whole showed its weakest rise for seven years at 4.1bn - some 3bn down on the average for the previous six months.

The general figures were weaker than many economists had predicted.

"They are clear evidence in the change in attitude among mortgage lenders and home buyers," said Ed Stansfield, of Capital Economics.

"People no longer want to borrow and those that do want to borrow are not being allowed to by the lenders.

"The implications of this is that the market is going to remain pretty weak for some time with a significant downward movement in house prices. We are off the scale. We have never been anywhere near as low as this in activity levels and mortgage approvals."

Major lenders will reveal their house price figures for June in the next few days.

The UK's biggest mortgage lender, the Halifax, recently suggested that UK house prices would drop by 9% this year, a more severe fall than its previous forecast.

'Looking to save'

Bernard Clarke, of the Council of Mortgage Lenders (CML), said he expected mortgage funding to be more easily available in the next six months, but house prices would continue to fall.

"We think that house prices by the end of this year will be around 7% lower than they were at the end of 2007 and clearly the shortage of mortgage funding is affecting demand in the house purchase market," he said.

Meanwhile, new figures released by the Building Societies Association (BSA) show that lending in that sector also fell sharply in May.

Net lending by building societies in May was 125m compared with 1.2bn in May 2007.

Adrian Coles, director general of the BSA, said the lending figures reflected the "depressed state of the housing market".

But he added that people are looking to save with building societies, with saving at 853m in May, up from 608m during the same month a year ago and the highest figure for May since 2002.


RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites


FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC iD

Sign in

BBC navigation

Copyright © 2019 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific