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House market throttled as loans fall 56%
Jonathan Prynn and Hugo Duncan24 Jun 2008
The biggest ever fall in the number of mortgages being approved was reported today.
Just under 28,000 home loans were given the goahead from banks last month, down 56 per cent in a year. It is down by a fifth from April's previous record low of 34,752.
The reluctance of banks to lend to borrowers with small or no deposits, fears about a full-scale housing crash and pressure on household budgets from rising prices have caused the collapse.
One expert said the market was being "throttled" by a combination of "stretched affordability and tight lending conditions". Another said there had been a progression from "credit squeeze to credit crunch to credit crisis" over the last 10 months.
Figures from the British Bankers' Association show the number of home loans approved last month at 27,968, the first time they have been below 30,000 since records began in 1997.
A year ago the figure was 63,762 and as recently as November 2006, at the height of the last housing market boom, almost 80,000 mortgages were being approved each month.
In the all-time peak month, February 2002, banks approved 91,889 home loans. The average loan value last month was £155,000, down 1.2 per cent in a year. Commentators fear that the worst "buyers' strike" since the early Nineties recession makes further steep falls in prices inevitable.
Savills, one of London's biggest estate agents, said prices in the capital could drop by 25 per cent by next year.
Howard Archer, chief European & UK economist at forecasters Global Insight, described the figures as "more news that heighten concern we are in for an extended, deep correction in the housing market". He added that the figures "graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions.
Mr Archer added: "Elevated affordability pressures on potential house buyers stem from high house prices and modest disposable income growth, while very tight credit conditions are leading to markedly fewer and more expensive mortgages being available. Indeed, average two-year fixed mortgage rates are now around 6.75 per cent, which is the highest level since 1998 and they could reach seven per cent soon.
"Furthermore, potential house buyers now have to provide higher deposit levels, which is a particularly major problem for first-time buyers."
Savills director of residential research, Lucian Cook, said there had been a shift from "credit squeeze to credit crunch to credit crisis" and that the housing market had moved from "slowdown to downturn".
Mr Cook said: "The driving force falls has been the ongoing credit crisis, which has significantly reduced accessibility to mortgage finance and prevented base rate cuts from being passed on to the consumer. This has occurred against a backdrop of a weakening outlook for the economic growth and reduced buyer confidence."
The slow down in property buying is having huge knock on effects across the economy. House building has virtually come to a halt and there have been falls in "big ticket" purchases associated with moving home such as new kitchens and carpets.
Reader views (2)
I live in the shires and nothing is moving round here at all, estate agents will have to start knocking 20 percent off to stimulate sales. London is way over priced so when prices start to fall they will tumble remarkably, look for a 20 percent cut nationwide in the next six months,if you are thinking of buying you would be well advised to hold fire for a minimum of 18 months
- Dave Roberts, spalding lincolnshire, 25/06/2008 10:41
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Looks like all the mortgage lenders will be missing out on their annual bonuses this year unless, of course, they continue to "rip-off the public" with outrageous mortgage arrangement fees!
- Fraser, Telford Park, 24/06/2008 22:47
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