Mortgage Approvals Pick Up
According to the British Banker's Association (BBA), figures for January 2008 have shown a rise in the number of approved mortgages.
The increase comes after months of decline and near record lows and has since sparked a more positive outlook regarding the slowdown in the property market.
Figures produced by the BBA indicated a rise in mortgage approvals this January to 44,288 from 42,343 last December. Underlying net mortgage lending was also up from £4.9bn to £5.2bn putting it in line with the previous six months average.
However, despite the positive upturn, mortgage approvals were still down by nearly a third compared to the same period a year ago. Economists are expecting to see a drop in house prices this year as an after effect of the global credit crunch. But just how much the economy will slow and to what level the Bank of England is prepared to drop the interest rates remains to be seen. One thing that has been stated is that a recession looks highly unlikely.
Economist Allan Monks at JP Morgan said:
"With credit conditions likely to continue tightening, and the growing expectation that house prices will fall this year, we would still expect to see some further declines in house purchase activity looking forward."
He added, "But the rise in the BBA provides some tentative signs that we may be close to the bottom of the current slowing in house purchase activity."
It is thought that the bulk of January’s mortgage lending increase comes from remortgaging, as homeowners switched to better deals in anticipation of any negative changes within the markets.
In a statement, David Dooks, Statistics Director at BBA said:
"Although house prices and new loans for house purchase, appear to be subdued as the housing market slows, the strength of remortgaging would suggest competition for mortgage business and switching remains high."
But it's not just economists who predict a slowdown in the housing market. Several surveys recently carried out have all indicted that a definite slow down is on the horizon.
Even the Bank of England has seen a drop in mortgage approvals with its own figures revealing a decade low of 73,000 last December. This Friday the BoE will issue its approvals release for the month of January, which analysts say will show a further drop to 70,000.
Howard Archer, an economist at Global insight said:
"House buyers are being pressurised by elevated house prices, modest real disposable income growth and the significant overall rise in mortgage rates since August 2006."
"While the Bank of England's trimming of interest rates in December and February will help matters, the overall downward impact on mortgage rates has been limited by a lack of funds for lenders and relatively high money market rates, as well as lenders wanting higher margins due to increased risks."
This month the BoE cut interest rates to 5.25% but any further cuts are not expected to come as early as first hoped. Economists predict further cuts will however take place by the end of the year, taking the Bank's base rate down to 4.75%.
The Bank's Monetary Policy Committee is now faced with the difficult task of balancing growing inflationary pressures whilst juggling a flagging economy and rising prices.
Published on February 27, 2008
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