UK mortgage slump
LONDON, April 23 (Reuters) – Approvals for British home loans slumped nearly 50 percent on a year ago to hit a record low in March, a survey showed on Wednesday, in a further sign the housing market is buckling as the credit crunch bites.
On Monday, British authorities announced an ambitious 50 billion pound mortgage swap plan for banks in an effort to clear balance sheets of hard-to-shift assets in exchange for government debt and get cautious banks lending to each other again.
It is hoped that will allow lenders to relax their terms for consumers and help stave off a possible crash in house prices as fears grow of a sharp economic slowdown.
The British Bankers’ Association said approvals for home loans — an indicator of future house prices — fell to 35,417 last month from 43,147 in February, the lowest since the series began in 1997 and posting an annual drop of 46.2 percent.
Overall mortgage approvals, including refinancing and equity withdrawal, fell to their lowest since 2000.
“Approvals have fallen very sharply, reflecting a combination of both lower supply and lower demand” said George Buckley, chief UK economist at Deutsche Bank.
“The house price outlook is very negative.”
Banks have toughened up their mortgage terms and even withdrawn products to protect themselves from too much exposure to consumer debt as they face high interbank lending rates and lack of liquidity in markets despite falling official rates.
Given house prices have nearly trebled in the past decade, higher mortgage rates are making it even harder for would-be house buyers.
“The consequences of low banking sector liquidity show up clearly in March data; reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals,” said BBA director of statistics David Dooks. With market expectations of several more interest rate cuts from the Bank of England starting to fade, analysts expect conditions to worsen in the coming months.
The BoE’s Monetary Policy Committee unexpectedly voted 7-2 to cut rates this month, with arch hawks Timothy Besley and Andrew Sentance wanting to keep borrowing costs steady. Rates were cut by 25 bps to 5.00 percent, and one MPC member favoured a 50 bps cut.
“It is very possible that a drop of more than 20 percent in house prices could occur over the next couple of years,” said Howard Archer, an economist at Global Insight.
The BBA also said underlying net mortgage lending rose 5.1 billion pounds ($10.16 billion) on the month in March, down from a 5.5 billion pound increase in February.