Mortgage approvals slump to seven month low

Mortgage market

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.”

Monthly mortgage approvals for house purchases

Source: BBA, September 2016

Unsecured lending

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.