Mortgage approvals flat as experts predict 5% fall in house prices
Wednesday, 04 January 2012 04:53
The Bank of England released lending data for November which shows the number of mortgage approvals edged up ever so slightly to 52,854 from 52,786 in October.
Economists had expected a slight fall down to 52,500, so the figures are slightly better than expected.
However, the increase equates to about one tenth of one per cent, which reinforces the picture that has come from other recent data on the property market, that the UK housing market is flat.
Indeed, the level of mortgage approvals is still a long way behind the monthly average of 88,000 over the past 19 years since 1993.
Most economists believe that a level of 70,000 – 80,000 is consistent with a stable UK housing market and because of this and other dangers facing the economy, it is expected that house prices will fall by around five per cent in the first six months of 2012 before stabilising.
Net mortgage lending fell to £600 million in November from £1.2 billion in October, a sharper drop than the £900 million most experts predicted.
Howard Archer from IHS Global Insight said: “We currently see house prices falling by around 5% from current levels by mid-2012 before stabilizing in the latter months of the year.
“We suspect that low wage growth, a markedly weakening labour market, and major concerns over the economic outlook will limit potential buyers and weigh down on house prices through the first half fop 2012 at least,” Mr Archer added.
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The factors that are expected to cause the trend in house prices are the fact that consumer confidence is low which means many potential homeowners who might otherwise move are putting off such a decision until economic conditions improve.
First-time buyers continue to face difficulties in borrowing from spooked banks which are hoarding cash to improve their balance sheets and add to their capital buffers as concerns over the euro debt crisis and exposure to bad sovereign debts continue.
A further factor that is discouraging activity is the expectation that unemployment will increase in 2012. Concerns over job security and low wage increases are likely to contribute to muted activity in the UK housing market.
David Braithwaite, director of the financial advisors, Citrus Financial Management said: “People buy property when they're confident and confidence is disappearing at roughly the same rate as Christmas cheer.
“The mortgage market for the foreseeable future will be one of haves and have-nots. Those with a decent chunk of equity or a good deposit coupled with stable income should have no problems at all, whereas those at higher LTVs or who don't meet the stringent criteria of the banks will find it very difficult indeed."
One bright spot in the outlook for the economy that could help house prices stabilise and encourage potential buyers later in the year is the expected sharp fall in inflation from its current level of 5.2 per cent for the retail prices index measure of inflation which includes the cost of mortgage interest payments.
The amount borrowed on credit cards remained broadly unchanged from October, while other types of loans increased by £400 million as a result of borrowing to fund Christmas.
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