Mortgage approvals in August hit all time recorded low

Article source: Bate Felix and Christina Fincher -

Mortgage approvals in August hit all time recorded low

The British Bankers Association, (The BBA), confirmed on Tuesday that mortgage approvals had fallen 64 percent year on year to an all time low in the month of August. They also suggested that they saw no up coming improvements for the housing market. (Source: Reuters London)

There are many causes which we could highlight to attribute blame for this current situation within the UK housing market; these include:

  1. 1. The lack of liquidity in the mortgage market. This can be attributed by the reluctance of banks to lend to each other which can be partly attributed to the high LIBOR (London Inter Bank Offer Rate) lending rate.
  2. 2. The tightening of bank requirements regarding the level of deposit required, and the income multiples on which they are prepared to lend.
  3. 3. The uncertainty around the Government’s plans on changing the stamp duty threshold. Many customers are holding out for this news and thus not apply for mortgages.
  4. 4. Many customers can simply not afford the mortgage deals being offered them and are thus holding out for the market to recover.

The British Banker’s Association used some of the reasons quoted above and further stated that just over 21 thousand mortgages were approved in the month of August, down from just over 22 thousand in the previous month, and down by more than an average of 12 thousand from the previous half of a year.

Howard Archer at Global Insight stated: “This is a really dismal set of mortgage data.”

After weeks of speculation the Government confirmed on September 2nd that all house purchase transactions less than 175,000 thousand pounds would be exempt from the stamp duty tax for a period of one calendar year. It was hoped that this move would breathe new life in to the housing and mortgage market; however it has now become apparent that the uncertainty around the Government’s proposal, and the time it took to actually be confirmed, has caused more harm than good.

The Government was criticised by Estate Agents nationwide for proposing an idea to revive the market (the change in the stamp duty threshold), and then taking so long to act on it. Many potential home buyers, it is believed, had postponed plans to purchase, based on the Government’s announcement.

Given the currently climate in which mortgage approval rates are very low, the move on stamp duty by the Government is very unlikely to have a significant positive effect on the housing market when it comes to bringing in added stability or halting the falling prices.

The report release by the British Banker’s Association revealed that from the housing market high a year ago, prices have already fallen by over 10 percent. This is supported by the fact that the credit crunch is already making it more difficult and more expensive for those looking to purchase a home to get the required finance.

The total amount of mortgages approved in August was valued at £2.1 billion; half that of the previous month. This is evidence in itself of a falling market.

David Dooks, Statistics Director of the British Banking Association commented: "Falling property prices, economic pressures on households, tighter lending criteria and anticipation of the government's announcement on stamp duty all suppressed or delayed demand in August." He went on to say that these factors will continue to affect the market in the coming months.