UK mortgage approvals slump to near 3-year low

Mortgage approvals for house purchases fell to a 35-month low in December, marking what was a fourth decline in five months, latest Bank of England figures have revealed.

Mortgage approvals fell to 61,039 in December (the lowest level since January 2015) from 64,712 in November, a month that mark the only rise in approvals recorded since July.

Approvals had previously edged up to 64,712 in November after dropping to 64,392 in October from 69,425 in July. At 61,039 in December, mortgage approvals were well below the average monthly level of 81,587 seen during 1993-2017.

Howard Archer, chief economic advisor to the EY ITEM Club said: “December’s sharp drop in mortgage approvals suggests that already pressurised housing market activity took a further hit from interest rate rise in early-November. Housing market activity has been under pressure from squeezed consumer finances and fragile confidence.”

“Some house buyers may also be concerned about the potential for further interest rate hikes in 2018. While the increase in interest rates in November was just 0.25% and mortgage rates are still at historically very low levels, there does appear to have been some impact on house buyers’ psychology.

“Housing market activity and prices are also likely to be pressurised by stretched house prices to earnings ratios and tight checking of prospective mortgage borrowers by lenders. According to the Halifax, the house price to earnings ratio stood at 5.66 in December. While this is down from 5.71 in November, it is only modestly below the nine-year high of 5.76 seen in December 2016 and is well above the long-term (1983-2017) average of 4.23.

“The downside for house prices should be limited by the shortage of houses for sale. High employment is also supportive for the housing market. The latest RICS survey showed new instructions to sell fell again in November, meaning that there have now been 23 successive months without a positive reading. Consequently, average stock levels on estate agents’ books in October remained close to June’s record low.

“The abolition of stamp duty for first time buyers for properties costing up to £300,000 (and on the first £300,000 for properties costing up to £500,000) should also provide some support to house prices. However, even if successful, the Chancellor’s measures to boost house building in the Budget will take time to have a significant effect. As such, they are unlikely to influence house prices in the near term at least.”