New mortgage approvals hit record low
The number of new mortgages taken out in July fell to the lowest level since records began, the Bank of England has revealed.
The Bank said that the number of new mortgages approved fell by 71% in the 12 months to July, with only 33,000 mortgages granted by lenders. It is also down from 35,000 mortgages granted in June and markedly below the previous six-month average of 55,000.
The weakest reading since records began in April 1993, analysts believe the drop signals that property prices will continue to fall in the coming months.
Howard Archer, chief UK and European economist at Global Insight said: “The very weak Bank of England mortgage data show that housing market activity continues to be throttled by stretched affordability and ongoing very tight lending conditions, and point to further marked falls in house prices over the coming months.”
This view is echoed by Nicholas Leeming, director of propertyfinder.com, who believes the dramatic fall in approvals is evidence that people do not want to move home.
“However willing they may be, the majority of people can’t move because they can’t get a mortgage either,” said Leeming. “Transaction levels in July suffered even further as the government failed to nip stamp duty holiday rumours in the bud, so the minority of people who are in a position to move have been waiting to see if they could avoid paying tax by delaying their purchase.
"The government needs to take decisive action and announce what measures they are planning in order to put the rumour to rest.”
Other industry bodies have called on the government to urgently intervene in the UK’s flagging property market.
The Royal Institution of Chartered Surveyors (RICS), which today claimed that housing sales are at the worst level in 30 years, has published its own list of suggestions, urging the government to act "quickly and decisively".
First on its wish list, RICS wants to see the government allow the Bank of England to guarantee the issuance of new mortgage-backed securities – loans that are parcelled up and sold on to other investors. RICS believes this would lead to greater confidence in the market and increase the number of available mortgages.
Other measures proposed by RICS include a short-term stamp duty holiday, making home information packs (HIPs) more consumer-friendly and less costly, and the introduction of a tax-free savings account for first-time buyers which would be supported by government contributions to help them save for a deposit.
RICS director of external affairs Gillian Charlesworth said: “The property market needs decisive government action on a range of fronts if it is to pull itself out of the doldrums and we call on the government to listen to the market’s solutions to a whole set of problems.”
“We know there is no silver bullet that will slay this monster but we need a joined-up, comprehensive approach to bring back confidence and to give the public clarity about what is available.”
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.