Industry figures have shown that the number of new mortgage applications approved by the major banks fell again in December. British Banker’s Association (BBA) members approved 42,088 new mortgage loans last month, the lowest figure that has been seen since 1997 when the data started to be collected.
Analysts think that the easiest way to solve this problem is for the Bank of England to cut its interest rates, although this proposition is meeting opposition as well as support as the market is already in turmoil and this is almost an admission of defeat. The amount of money advanced for home purchases dropped to £15.1bn, a figure last seen in September 2005, and 10% less that December 2006.
The BBA’s figures are in agreement with recent data from the Council of Mortgage Lenders (CML), who said that gross lending fell 25% in December to £22.6bn, the lowest monthly figure since May 2005. David Dooks, BBA’s statistics director said: "Mortgage lending weakened notably in the second half of 2007 as the credit crunch impacted on banks' ability to lend, at the same time, demand for mortgages also softened in the face of increased borrowing costs and lower disposable income.
"The combination of these factors is resulting in the marked market slowdown and weakness in house prices we are now seeing," he concluded.
Among the news of reductions and falling approvals, there is some good news; the figures showed that net lending increased slightly in December, this is after redemptions and repayments have been deducted. There was also a small jump in the number of loans approved for re-mortgaging customers, with 62,771 new loans given the go ahead, compared to 59,628 in November 2007. Although if examined more closely this is not necessarily good news, people borrowing against their property is a desperate measure, one which is likely to be caused by the credit crunch and the strict measures in place to regulate unsecured lending.
The chief UK and European economist at Global Insight, Howard Archer, commented on this, saying: “The December BBA mortgage data provide yet further evidence that housing market activity is now being substantially undermined by both stretched affordability and tightening lending practices. This adds to the already intense pressure on the Bank of England to cut interest rates in February, and to enact significant further reductions thereafter."
Despite that fact that Britain’s house prices ended 2008 5-8% higher than when the year began, prices started falling during the second half of the year, under the pressure of higher interest rates. The Bank of England held its interest rates in January 2008, predictions of a February rate cut are prevalent. However Mervyn King, the Bank’s governor remarked that inflation concerns may prevent this from happening.
The competition from brokers and adviser to purchase mortgage leads from other companies is red hot at the moment because the demand for mortgage deals is falling. The lower number of customers who are actively looking for a mortgage deal, results in brokers fiercely competing for business against one another.
BBA figures showed that unsecured lending from banks remained subdued in December, while the amount of outstanding debt on credit cards rose by only £200m, a lower figure that expected because customers were repaying more than they spent.
An increase of £400m in the borrowing through loans and overdrafts was also seen in December, and consumers also stashed £1.9bn in saving accounts or investment schemes. This was a £200m increase on November, but was less than the amounts deposited during September and October into banks and building societies.
