Mortgage lending hits record lows
The number of borrowers being approved for new mortgages has fallen by 64% over the past 12 months as the credit crunch continues to hit banks’ ability to lend money.
The latest figures from the British Bankers' Association (BBA) show just 21,086 mortgages were approved for house purchases in August, down from 58,564 in the same month last year.
David Dooks, statistics director at the BBA, says falling property prices, economic uncertainty and anticipation of the government's announcement on stamp duty are all to blame for the low levels of mortgage activity during the month. And despite the government finally taking action on stamp duty, he says the situation is unlikely to improve anytime soon.
Philip Hammond, the Conservative Party’s shadow chief secretary to the Treasury, has also blamed the government's “dithering” over stamp duty for low levels of activity.
“In the week that Gordon Brown attempts to save his job, these figures are a timely reminder of his damaging dithering over stamp duty,” he says. “With mortgage approvals now at record lows, the effects of his economic incompetence are now clear for all to see – with would-be homeowners left to pick up the pieces.”
The Conservative Party describes the housing market as being in “freefall”, hit by stretched valuations, the credit crunch, and a lack of consumer confidence. Hammond adds: “The housing market is unlikely to recover sharply after the cut in stamp duty was announced in September.”
The figures have prompted new calls for the government to take action and help banks get new funding that will enable them to loosen their lending criteria.
Peter Rollings, managing director of estate agent Marsh & Parsons, says: “This should be a serious wake up call for the government, the Financial Services Authority and Bank of England. We’re really starting to see how bad the situation could get if we continue to rely solely on market forces to get the housing and mortgage markets moving again.”
Meanwhile, new research from data provider Moneyfacts suggests that the number of mortgages available for borrowers with a deposit of 10% or less continues to dry up with 45% fewer deals on the market than this time last year.
Darren Cook, mortgage expert at Moneyfacts, says: "This time last year, 74.2% of the mortgages were available for borrowers with a deposit of 10% or less - today that has dropped to 29.2%. [Today] Lenders are focusing much more on risk.”
In the past few days, Northern Rock and Yorkshire Building Society have increased the rates of their 10% deposit mortgage deals, and as house prices continue to fall the fear is more lenders will penalise borrowers without large deposits.
Cook adds: "The fallout from the Lehman Brothers collapse will inevitably affect mortgage rates in the UK, particularly as swap rates [the interest rates on money banks lend to each other] continue to increase. However, it is too soon to attribute any rate increases to this as yet.
"The effect will start to be seen in the coming weeks, as lenders revise rates, get them approved internally and marketed through branches."
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.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.