Mortgage lending falls to record low

House Prices

Mortgage approvals agreed by the UK’s high street banks fell sharply in January fell, sparking fears about the state of the housing market.

Mortgage approvals were down from December at 35,083 and just £8.02 billion was lent during January, this compares with an average monthly amount of about £18 billion during 2007 and was the lowest level since March 2001.

The number of mortgage approvals is at its lowest point since May 2009 leading to fears that the housing market may stall and prices possibly fall after recent rises. However the reasons may be much simpler, ‘one off events’, and not reflect any long term issues with the housing market.

The main reason for the fall would seem to be the changes with stamp duty on home sales which now kicks in at £125,000, after a higher threshold of £175,000 was put in place to help to kick-start the housing market. Lending was much higher in December, reflecting the fact that many people pushed through their purchase to benefit from the lower rate of stamp duty.

A further reason could be the poor weather experienced by many parts of the country in January. The British Bankers’ Association (BBA) said that adverse weather conditions in the first month of the year deterred would-be house hunters and also affected the consumer appetite for spending, leading to lower consumer credit levels.
David Dooks, the BBA statistics director, said: “It was no surprise to see the January mortgage figures falling back from December, when transactions were being pushed through to beat the end of stamp duty relief.

“There was a natural reaction in the January figures and the bad weather further suppressed market activity.

“After the Christmas period, demand for consumer credit was weaker in January, as people shied away, or were discouraged by the weather, from retail spending and held on to their deposits.”

The numbers of people remortgaging their property are at 10 year low reflecting the current environment of low interest rates meaning many are better off staying on the Standard Variable Rate.

Whether the fall in mortgage approvals is due to a combination of changes to stamp duty and the bad weather or is down to longer term problems only time will tell. It perhaps should be expected that the housing market is strong enough not to be effected in the medium to long term by these factors, however a rise in interest rates at any time in 2010 could well have a far longer lasting effect on the housing market.