Mortgage approvals fall by 20% in a year as buy-to-let hangover and Brexit weigh on property market confidence
- BBA: Mortgage approvals for house purchase hit a 19-month low in August
- CML: Loans to first-time buyer increased in all regions except for London
- Stamp duty stampede hangover hits property sales
The number of mortgages handed out to home buyers in August fell by more than 20 per cent compared to last year, according to fresh figures showing the housing market is softening.
The hangover from the rush to beat the buy-to-let stamp duty hike from April and a knock to confidence from Brexit have both contributed to the slowdown, while experts suggest high house prices are also taking their toll.
Although gross mortgage borrowing increased by 1 per cent to £12.4billion in August compared to last year, the number of mortgages for house purchase fell by 21 per cent to 36,997 last month from 46,785 a year before.
Mortgage lending: The number of mortgages for house purchase fell by 21 per cent in August
The figure was also the lowest since January last year, when it hit a peak of 46,335, according to data by the British Banks Association.
Dr Rebecca Harding, chief economist at the BBA, said the drop in approvals reflected both the slowdown in housing market growth after April’s spike – when buy-to-let buyers rushed to beat the stamp duty increase - as well as ‘broader trends in the sector’.
‘The data was collected before the Bank of England reduced interest rates to 0.25 per cent and so give an indication of some of the underlying pressures that the MPC was responding to when it made this decision’, Ms Harding said.
Andrew McPhillips, chief economist at Yorkshire Building Society, said that mortgage lending was still rising despite a fall in property transactions because of increasing house prices, which are causing people to take out larger loans to afford a property.
He said: 'Although lending has shown strong growth over the past few years, mortgage approvals have been relatively flat and further increases in house prices could dampen market activity in the future, potentially causing growth in mortgage lending to slow.'
The BBA data point to a softer housing market, strong consumer credit and slightly weaker business borrowing in August
However, big discrepancies in affordability across the UK means mortgage lending has not been uniform across the UK, according to separate data by the Council of Mortgage Lenders.
The number of loans to first-time buyer increased in Scotland by 39 per cent, in Wales by 31 per cent and in Northern Ireland by 18 per cent in the last year.
In London, however, where homes have become increasingly unaffordable, they have gone up by just 3 per cent and the capital has actually seen a 37 per cent drop in loans to home movers.
That is the biggest fall compared to the rest of the UK, with home movers in Scotland actually seeing an 11 per cent rise in mortgage lending.
However, the CML said that last year saw the highest volume of loans for house purchase by owner-occupiers since 2007.
The low interest environment has seen the number of people remortgaging rising in recent years as homeowners switch to cheaper deals.
However, the BBA said remortgaging approvals were 6 per cent lower than a year ago, although in the first eight months of 2016 they were 16 per cent higher than in the same period in 2015.
Howard Archer, chief economist at IHS Global Insight, said that while softer housing market activity was likely to limit house prices, he expected the current resilience of the economy and a shortage of properties to prevent values from falling over the final months of 2016.
However, he still pencils in a slight dip in property prices in 2017, possibly by around 3 per cent.
Supply of homes hits six month high in August
The number of homes available on the market rose to the highest level seen since March this year, according to estate agents.
The National Association of Estate Agents said 41 homes per branch were available in August - the highest level since March, when agents reported an average 54 properties registered per branch.
However, the number of house hunters registered per member branch dropped marginally, to an average of 287, from 298 in July. But two in five estate agents expect demand to grow following last month's interest rate cut.
The NAEA also said that the number of sales made to first time buyers increased by three per cent in August. But sellers were increasingly getting less than the original asking price.
Mark Hayward, managing director of NAEA, said: 'Although we have seen a slight drop in demand, the fact that supply has risen means more choice for those that are looking for a new home and we can see the impact of that because the rise in sales to FTBs was higher than we normally see in August.
'News from the Treasury this month that government deposits on the Lifetime ISA can be used towards the initial deposit to secure a property and the impact of interest rate cuts will also raise confidence in FTBS that now is a good time to be looking to buy.
CML figures show that there are significant differences between regional markets
Mr Archer says that pressure will grown on the property market over the rest of this year and next.
‘We believe housing market activity and prices will be increasingly pressurised in 2017 as mounting uncertainty affects the economy and also constrains consumer confidence and willingness to engage in major transactions,’ he said.
‘We also believe that the fundamentals for house buyers will soften (particularly in 2017) with purchasing power softening and unemployment likely rising.
‘However, it is very possible that the downside for house prices will be limited markedly by a shortage of houses for sale,’ he added.
Meanwhile, consumers continue to borrow more on credit cards and loans, with consumer credit growing at an annual rate of 6 per cent, as they advantage of low interest rates, the BBA said.
‘Given the low interest rate environment and high levels of confidence during the summer, the strong credit growth can be interpreted as strong consumer sentiment,’ Dr Harding said.
Consumer spending is the main driver of the UK economy and economists fear that if inflation rises and wages stagnate, consumers will rein in their spending, dragging down the economy.
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