Mortgage approvals drop to 14-month low in September as market eases further

23rd October 2014

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Mortgage approvals dropped back for the third month running to a 14-month low in September further fuelling evidence of a slowdown across the UK’s property market.

According to the latest numbers from the British Bankers Association (BBA) there were 39,271 home loans granted for house purchases in September, down from 41,361 in August and 42,594 in July and 19% off on January’s 76-month high of 48,462.

Howard Archer chief UK & European economist IHS Global Insight believes the retreat from January’s peak was clearly influenced appreciably by the introduction of the Mortgage Market Review (MMR) regulations in April, which put greater onus on mortgage lenders to assess the ability of potential borrowers to meet their initial and future (mortgage payments.

He said: “It is likely that many lenders had to adapt their procedures, such as introducing more rigorous interviews with prospective borrowers and checking facts. This likely delayed the processing of mortgages. Indeed, it is notable that the Bank of England’s Trends in Lending quarterly survey for October reported that some of the slowdown in mortgage lending over the summer was due to lenders getting to grips with operation issues related to the introduction of the Mortgage Market Review.

“However, the fact that mortgage approvals are substantially below their January peak levels – and are currently falling – after lenders have now likely got to grips with the new mortgage regulations points to an underlying moderation in housing market activity.”

Notably recent surveys bolster the argument that buyer interest has come off the highs seen earlier this year. For example, both Hometrack and the Royal Institute of Chartered Surveyors (RICS) have been reporting falling buyer enquiries in recent months.

“Hometrack reported that buyer enquiries fell 2.1% month-on-month in September, which was a fourth successive drop and larger than the 0.9% decline seen in both August and July. buyer enquiries. The RICS reported that buyer enquiries fell for a third month running in September. In addition agreed sales were “broadly stable” in September after falling in August for the first time since September 2012,” added Archer.

However Archer expects buyer interest to be reasonably healthy going forward even if it has come well off peak levels, as it should be supported by elevated consumer confidence, markedly rising employment, and still low mortgage interest rates, especially as they now look unlikely to rise before mid-2015 .

He said: “Although there are some signs that limited supply of houses is currently easing as an overall factor pushing up house prices, it is likely to remain a significant influence in some regions over the coming months. Even so, significant restraint on house buyer interest is expected to come from more stretched house prices to earnings ratios, the prospect that interest rates will eventually start to rise in 2015 and tighter checking of prospective mortgage borrowers by lenders.”

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