Mortgage Approvals Drop

Bank of England figures show that the number of mortgage approvals for homebuyers have fallen to their lowest level for over two years in September. At the same time, unsecured borrowing reached its highest level for 18 months.

In September there were only 102,000 homebuyer mortgage approvals, down by nearly 10% on recent levels, and the lowest figures since July 2005.

Unsecured borrowing, via credit cards, overdrafts or personal loans jumped up by £1.35bn to reach its highest peak since January 2006.

Britons are borrowing more than £1bn per day against their homes, but the fall provides more evidence that the property market is distinctly cooling. A recent report from Hometrack said that prices fell nationwide for the first time in two years during September.

Commenting on the Bank of England figures, Simon Rubinsohn, RICS chief economist, said: “This provides further evidence that the housing market is cooling in response to five interest rate increases and the more recent squeeze on credit. Although today’s figure represents a fall in activity of 11% since July, mortgage approvals are still above the long run average thanks to the combination of a resilient economy and generally healthy employment climate. That said, we expect further weakness in activity in the coming months.”

There has been a small increase in the number of people re-mortgaging and buy-to-let loans, but these only serve to increase the belief that more and more people are looking for more ways to raise cash or invest for a better future. With borrowing increasing on credit cards, and via overdrafts and personal loans it looks as though people are looking for other sources to fund their mortgage repayments.

Howard Archer, chief UK economist at Global Insight, said: “Evidence is now coming pretty thick and fast that housing market activity is being squeezed by a combination of tightening lending standards resulting from the credit crunch and the increasing affordability pressure on house buyers coming from higher interest rates, elevated house prices and modest real disposable income growth.”