New mortgage approval reaches low point & increases pressure for interest rate cut

The number of mortgages approved last month for new homebuyers has dipped to its lowest figure in at least 8 years. This has increased speculation within the industry for a potential interest rate cut in the near future.

The Bank of England released figures showing that banks and building societies approved 73,000 loans for house purchases in December, compared to 81,000 in November and 114,000 in June. The Bank began to collate its data in this way in 1999 and this has been the lowest figure yet to be recorded since then.

The prediction for December had been an estimated 79,000, so obviously the actual figure was considerably lower.

It seems somewhat ironic that these figures have been released the day after it was announced that generally the cost of buying property has increased by351% since 1996. The initial costs of home buying have increased due to higher house prices in general and tighter conditions enforced by lenders, making substantial deposits from potential borrowers a necessity.

One of Global Insight’s chief economists believes these figures are proof positive that the housing market activity is “being substantially undermined by stretched affordability and tightening lending practises.” He believes this puts considerable pressure on the Bank of England to cut interest rates as early as next week and to consider further similar reductions.

Looking at other figures, there has been a much slower rise in consumer credit spending, including personal loans and credit cards. They only increased by £600million, which is just 0.2% rise from November and only 5.7% up on December 2006.

There was a slight increase in re-mortgages which showed 97,000 in December, compared to 96,000. This is a result of people reaching the end of their fixed-rate terms and shopping around for the latest ‘best deal’.

This year, it is expected that roughly 1.4million people will reach the end of their fixed-rate deals.

Total net lending to individuals is reported to be £9.1billion in December, compared to £9.2billion in November and the previous 6month average of £10billion.

The last word goes to Royal London Asset Management’s economist, Ian Kernohan, who concludes, ”The latest numbers indicate that the current housing slowdown is more pronounced than in 2005 and bodes ill for the next set of retail sales data.