Mortgage approvals slump to seven month low
The UK’s property market showed signs of slowing in August, with mortgage approvals slumping to a seven month low, according to the latest figures from the BBA.
The trade organisation for banks in the UK says mortgage approvals in August were 13.8% lower than the previous year.
It’s likely some of the slowdown in mortgage lending was caused by the additional stamp duty on second homes that was introduced in April. In the first three months of 2016 more mortgages for home purchases were approved than in the previous year, but since then the figures have consistently been lower.
However, Brian Murphy, head of lending at the Mortgage Advice Bureau says the market is returning to normality: “Given that August 2015 was an exceptionally busy period, due to pent up market demand following the General Election, these figures would suggest that the market this year is in line with normal seasonal activity. This is further borne out when we look at the number of loans approved for purchase transactions, which are actually only 1.7% lower than August 2015.”
See the chart below for the annual change in mortgage approvals.
Consumer debt still rising
Despite the number of mortgage approvals slowing, overall lending reached new heights, with the UK’s total mortgage debt rising by £1.7 billion. Around two thirds of that was for property purchases, with most of the remainder covered remortgagors.
Andrew McPhillips, chief economist at Yorkshire Building Society, comments: “The fact that mortgage lending is still rising despite a fall in property transactions is a result of increasing house prices which are causing people to take out larger loans to afford a property.
“Although lending has shown strong growth over the past few years, mortgage approvals have been relatively flat and further increases in house prices could dampen market activity in the future, potentially causing growth in mortgage lending to slow.
“In order to address this issue and help more people onto the property ladder, the UK needs to build more houses to bring supply in line with demand. Given that the UK currently has a housing deficit of around 1.2 million properties, it is likely to take a significant amount of time to fully resolve this issue, and the Government should also look to implement measures which would help more people to afford a home in the short term.”
Source: BBA, September 2016
The BBA says credit card debt rose by £379 million to £42.9 billion during August, while the amount of personal loans granted rose by £241 million to £1.9 billion. Overdrafts also took a hit, with Britons sinking £241 million further into the red during August, taking the total amount of overdraft debt to £6.9 billion.
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.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
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.