UK Mortgage Approvals Plunge to an 18-Month Low

on Aug 1, 2012

The number of mortgage approvals in the United Kingdom fell to an 18-month low in June, a further symptom of the country’s double-dip recession. Simultaneously, UK house prices dropped to a three year low, further underlining the current unfavourable housing market conditions.

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On 30 June 2012, the Independent reported that according to Bank of England figures, the approvals for house purchases in June were 44,192, down from 50,544 the previous month and reaching their lowest level since December 2010. The number was lower than initially expected, with economists predicting that approvals would drop to 48,000 according to the Bloomberg News survey.

The Independent also reports that the Bank of England data revealed that repayments on secured loans were ahead of new lending for the first time since June 2011, leading to the smallest rise in total lending to individuals in nearly two years. Re-mortgaging approvals in June were 24,117, down from 28,567 in May 2012.
!m[](/uploads/story/218/thumbs/pic1_inline.png)The June mortgage approval results are indicative of weak housing market conditions and are unlikely to get better in the coming months. Bloomberg quotes Samuel Tombs, an economist at Capital Economics Ltd., who noted that the low level of consumer confidence and the recent tightening of credit conditions were likely to remain depressed in the second half of 2012 as well.

And while lenders are expected to continue to tighten their borrowing criteria and raise their mortgage rates, UK house prices are falling, with Bloomberg reporting that in July prices fell 2.6 percent from a year earlier, or the most since August 2009, according to Nationwide Building Society. The price of the average home was £164,389, which is 0.7 percent lower than the previous month.

Recently, Rightmove Plc (RMV), a company operating a website with properties for sale in Britain, also said in its July property report that there was a drop in asking prices, with house prices in England and Wales falling by 1.7 percent in July, relative to the previous month.
Nationwide notes on its website that the observed weaker price trend is hardly surprising, given the disappointing performance of the wider economy. According to Bloomberg, recently released data revealed that the UK economy shrank 0.7 percent in the second quarter, or the most in more than three years, after another 0.3 percent contraction observed in the first quarter of 2012.

The outlook for the UK house prices over the near to middle-term is not particularly good. The Independent quotes Howard Archer, chief UK and European economist at IHS Global Insight who said that house prices were set to fall in the coming months as well. “We expect house prices to end up losing at least 3 percent from current levels. Furthermore, there is a significant danger that house prices could fall even more than this due to the serious downside risks to the UK economic outlook, both from domestic factors and from the Eurozone crisis,” he noted.
The latest figures come against the backdrop of the IMF’s recent report stating that it believed the UK’s housing market to be overvalued in the context of historical price to earnings and price to rental ratios, with a correction predicted. On the bright side, for those with enough liquid funds to pay a large enough deposit to secure a mortgage, current market conditions provide some excellent bargains, with that trend also looking set to continue.


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