Mortgage Approvals fall to 17-month low and by 16% on the previous year in sign that Housing Market has come off the boil

Mortgage approvals continue to tumble month-month suggesting the Bank of Englandís (BoE) crackdown on the lending sector is having a decidedly dampening effect on the housing market.

Data from the British Bankerís Association (BBA) shows that 37,076 mortgages were sanctioned in October, representing the lowest total approved in 17 months and a 16% decrease on the preceding 12 months.

Januaryís record 6 year high figures for mortgage approvals of 48,649 has fallen by almost a quarter over the course of a year in which policymakers have introduced a number of measures to clamp down on perceived irresponsible mortgage lending in order to reign in the overcooking housing market.

However, the BBA noted that unsecured borrowing was ìat its highest growth rate in yearsî, implying heightened consumer willingness to invest in ëluxuryí purchases such as home refurbishments and cars. With memories of the financial crisis still fresh in the mind, a 2.8% increase in unsecured borrowing during the month of October

A number of high street lenders have stressed that dampening measures introduced by the BoE in Aprilís Mortgage Market Review (MMR) ñ which included stress testing prospective candidates to see how they would cope with repayments if interest rates were to grow up by 3% and kerbing the amount that can be lent to 4.5 times a borrowerís income ñ had stopped affecting lending activity in June this year, yet Octoberís data for mortgage approvals is inconsistent with this viewpoint.

However, given the amount of time passed since the MMR, it is thought that lenders would have got to grips with this tougher lending criteria, and as such, there could be other contributing factors to the housing marketís slowdown.

Howard Archer, economist at IHS Insight, said: ìThe falling back of mortgage approvals from Januaryís peak level was clearly influenced appreciably by the introduction of the new mortgage market review regulations that came into effect in late April. However, the fact that mortgage approvals are substantially below their January peak levels ñ and falling ñ after lenders have now likely got to grips with the new mortgage regulations points to an underlying moderation in housing market activity.î

Analystís predictions that mortgage approvals would fall at a more gradual pace from September to October have also proven to be deficient, with both remortgages and equity release plummeting in number too.

The BBAís data comes after a string of reports forecasting falling house price growth for the foreseeable future, with waning demand, buyer hesitancy due to uncertainty over the timing of an interest rate hike and a potential change in government next year.

Matthew Pointon, property analyst at consultancy Capital Economics, said: “The further fall in mortgage lending reflects an acute weakness in housing demand. While the dip in lending earlier in the year chiefly reflected the impact of new mortgage regulations delaying some applications, we would have expected that disruption to have largely passed by now.”

He continued: “The recent malaise is therefore likely to reflect buyers being put off by concerns over future rises in interest rates and a lack of choice of homes on the market. It is also possible that banks have been wary about boosting lending while new rules over minimum leverage ratios were still uncertain and tough stress tests due before the end of the year were in sight.”

The Royal Institute of Chartered Surveyors (Rics) have released regular updates on the diminishing number of buyer inquiries in the second half of this year, while the Centre for Economics and Business Research has forecasted that house prices will fall by 0.8% over the course of 2015.

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