Mortgage approvals slump by 46% in 12 months » Housing » 24dash.com

The number of mortgages approved for people buying a home has dived by 46% during the past year as the credit crunch continues to impact the market, figures showed today.

Mortgage approvals for house purchase slumped to 35,417 in March, the lowest level since the British Bankers' Association first began collecting statistics in 1997.

Across the board just 129,300 mortgages for all purposes were approved during the month, the lowest level since September 2000, as the market continued to be constrained by lenders' higher rates and tighter lending criteria.

Mortgage advances were also subdued, with a total of £16.6 billion advanced during March, £1 billion less than in February and 14.7% less than in the same month of 2007.

The BBA said it expected gross lending to continue to weaken due to the continuing decline in mortgage approvals.

Net lending, which strips out redemptions and repayments, totalled £5.1 billion, down from £5.5 billion in February.

The Bank of England offered help to banks earlier this week when it unveiled a £50 billion scheme to help tackle the problems caused by the credit crunch, under which lenders can swap their riskier mortgage-backed assets for safer Government bonds.

Lenders welcomed the announcement as an important step to tackling the current funding difficulties they faced, but warned that it was unlikely to lead to a reduction in mortgage rates for new borrowers in the foreseeable future.

The credit crunch has led to steep increases in mortgage rates, with the cost of two-year fixed-rate deals for people with a 5% deposit recently hitting a seven-and-a-half-year high, despite falling interest rates.

Lenders are raising their rates to reflect their own higher borrowing costs, and are demanding ever higher deposits from borrowers, making it increasingly difficult for many people to get on to and trade up the housing ladder.

David Dooks, BBA statistics director, said: "The consequences of low banking sector liquidity show up clearly in March data.

"Reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals.

"Pressure on personal finances are also constraining demand, not only for mortgages, but also for personal loans and borrowing on cards."

Credit card repayments continued to outstrip spending in March, with people making £7.4 billion worth of purchases on their plastic during the month, but repaying £7.5 billion.

Despite this, outstanding credit card debt still increased by £163;300 million during the month due to the impact of interest and charges.

Borrowing through new loans remained in line with recent months at £2.7 billion, while overdraft lending rose slightly.

Consumers increased their savings by £2.9 billion during March, the highest level since July and well up on the recent monthly average of £1.9 billion.

Howard Archer, chief UK and European Economist at Global Insight, said:
"March's BBA data indicate that mortgage activity is being pummelled by a toxic combination of stretched affordability and very tight lending conditions.

"The low level of mortgage activity is not only a consequence of slowing demand for houses due to the elevated affordability pressures facing potential house buyers, but also increasingly due to very tight credit conditions leading to markedly fewer and more expensive mortgages being available."

He said the data highlighted the need for "concerted, sustained action" to try to get banks to lend to each other, so that more liquidity was available to fund mortgage lending and help rates come down.

But he added that while the Bank of England scheme should help the situation, it was "very unlikely to be the end of the problem".

Seema Shah, property economist at Capital Economics, said: "The slump in mortgage approvals in March is entirely consistent with mortgage lenders tightening lending criteria, raising mortgage fees, and effectively closing their doors to all but the most credit-worthy borrowers.

"With activity so subdued, more house price falls are on their way. We think house prices will fall by 8% this year."