THE number of mortgages approved for home buyers plummeted to a record low last month, writes Jeff Salway.
Just 27,968 mortgages were approved in May by members of the British Bankers Association (BBA), 20 per cent fewer than in April and 56 per cent down on the corresponding month last year.
The level of approvals was the lowest since the BBA first c
ollected the data in September 1997, while the month-on-month decline was the sharpest recorded.
The value of loans for house purchase was down 57 per cent over the year to £4.3 billion, compared with an average of £6.4bn for the previous six months. The value of overall mortgage approvals was 31 per cent below last May's level at £14.3bn.
Remortgages accounted for 53 per cent of all approved loans, although they were still 10 per cent down on May 2007.
Although the figures exclude building societies – including the UK's second-biggest lender, Nationwide – banks account for around two-thirds of UK mortgage lending.
The decline reflected the growing difficulty faced by home buyers in obtaining mortgages. The number of mortgages deals available has fallen from over 15,000 a year ago to below 4,000 as lenders have tightened criteria and increased the size of deposits required in response to the credit crunch.
The average two-year fixed-rate mortgage has now risen above 7 per cent, financial data provider Moneyfacts said yesterday.
But Lesley Canavan, general manager of the Edinburgh Solicitors Property Centre's money management division, said borrowers had been scared away from the market unnecessarily. "The fall in approvals does not show that people are being refused mortgages, it reflects their reluctance to ask for one. There are still lots of mortgages to be had."
The BBA data followed a HM Revenue & Customs report on Monday revealing the number of property transactions across the UK fell by over 13 per cent in May, the biggest monthly fall since November last year.
With mortgage approvals typically followed by house price falls, experts said the BBA figures were ominous.
"More housing market data, more very worrying news that heightens concern that we are in for an extended deep correction in the housing market," said Howard Archer, an economist at consultants Global Insight.
Archer predicted that house prices would fall by 12 per cent both this year and next, before reaching a plateau in 2010.
The full article contains 411 words and appears in The Scotsman newspaper.
