Mortgage approvals fall by 16%
25/11/2014
Mortgage approvals have fallen by 16% in the last 12 months, providing further evidence that the housing market is slowing down, according to the British Banking Association (BBA).
BBA said that a total of 37,076 mortgages were approved in October this year, which is the lowest figure for 17 months. Additionally, the total value of these mortgages was around £6bn, which is a 13% year-on-year decrease.
Howard Archer, the chief UK and European economist at IHS Global Insight said that the housing market has “come well off the boil”.
Experts within the finance industry have recently stated that one of the reasons the housing market has slowed down so much, is because of new rules implemented by the Financial Conduct Authority (FCA), known as the Mortgage Market Review (MMR).
The new mortgage rules restrict banks from lending money to prospective homeowners if they cannot pass a strict financial health check, meaning that some people who would have previously been accepted for a mortgage, may now be rejected.
However, the reasoning for the implementation of such a rule is to stop people from committing to a mortgage they could afford if their financial circumstances were to change. This is something that originally contributed to the financial crisis in 2007, so the FCA believed it was imperative to implement these rules.
Will house prices continue to stall?
There is mixed evidence as to how the housing market will perform in 2015, which has led to experts in the industry sharing varying predictions.
The Halifax have stated that they expect house prices to increase by 3-5% throughout 2015, which is a sharp fall in comparison to this year, when prices rises peaked at 10% in January.
Despite this expected slow down in price rises, Martin Ellis, the Halifax’s chief economist remained positive over his expectations for a gradual recovery of housing demand.
He said that as average earnings are expected to outstrip inflation next year, combined with a forecasted economic growth of 3%, there should be still be a continuing demand for mortgages.
Additionally, Capital Economics claimed that lending will recover in the near future by stating: "With mortgage rates falling to new record lows, the economy set for robust growth and uncertainty over leverage ratios lifting, conditions for a gradual recovery in lending are favourable".
However, whilst most analysts have predicted modest house price growth, the Centre for Economics and Business Research (CEBR) predicted that prices will actually fall by 0.8% next year.
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