Is the housing market recovery losing steam?

30 November 2009

The number of mortgage approvals for house purchases rose for the 11th month in October, but one expert says the 'recovery' is losing steam.

There were 57,345 mortgages approved in October, up from 56,205 the previous month, data from the Bank of England reveals. However, in comparison, the number of remortgage approvals fell by nearly 1,000 to 24,596.

In total, purchase and remortgage loans rose in value by £0.9 billion during the month, in line with the increase in September and above the six-month average of £0.6 billion.

Mortgage lending traditionally picks up during the autumn after the slow summer months, but these figures also highlight that confidence in the housing market is slowly returning. The fall in remortgage figures, meanwhile, reflects low interest rates.

Brian Murphy, head of lending at mortgage broker the Mortgage Advice Bureau, says: "The remortgaging figures are to be expected given the attractive standard variable rates that are available at present. However, we continue to urge borrowers to be wary of our position in the interest rate cycle and that locking into a rate now could pay dividends in the short to medium term."

Funding constraints remains on the key issues affecting lending, although the low levels of property coming onto the market is also restraining activity.



Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, says estate agent books are benefiting from a rise in new instructions, but these still remain at historically low levels and are not keeping pace with demand from buyers.

"This imbalance helps to explain why house prices are continuing to push upwards,” he adds. “The pace of price increases is likely to slacken as a little bit more supply comes onto the market but with new buyer enquiries at estate agents still rising more rapidly, it is likely that prices will continue to move higher in the new year even if the extended zero rate stamp duty allowance is removed."

However, Seema Shah, property economist at Capital Economics, believes that the housing market recovery is “losing steam". She believes that demand for property is fading thanks to rising unemployment and strict lending criteria.

“We are very sceptical that mortgage lending will increase significantly next year,” Shah adds.

“Although the economy is likely to grow, the recovery will be distinctly lacklustre and will not prevent employment or average earnings growth from falling further. Accordingly, we suspect that the improvement in buyer interest will falter.”  
Elsewhere, data from the Building Society Association (BSA) shows mortgage approvals fell from £1,565 million in September to £1,511 million in October. This is also significantly down from October 2008, when mortgage approvals were £2,902 million.

Adrian Coles, director-general of the BSA, says: “Modest improvements in the housing market have occurred in recent months, especially when compared to the start of the year, however lending still remains subdued compared to previous years.”

He adds the funding difficulties and the low supply of properties coming onto the market, means the level of mortgage lending is likely to remain “depressed”.

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