Mortgage blog: Approvals hit 14-month low as market cools

Posted 6 November 2014

New figures from the Bank of England have revealed that the housing market appears to be slowing faster than expected. Official data shows that there were 61,267 mortgages approved in September, the lowest monthly total since 2013.

The fall in approvals is evidence that Bank of England efforts to cool the UK’s housing market appear to be having an effect.

Tough mortgage rules not to blame for fall in home loan approvals

The latest data from the Bank of England has revealed that there was a sharp decline in mortgage approvals in September with the number of home loans agreed hitting a 14-month low. 61,267 mortgages were approved in September, down from 64,054 in August and representing the lowest figure in over a year.

Overall, the Bank's figures show that lending is now 8.7% lower than it was a year ago. Experts are divided as to what the cause of the drop may be. Some believe that tougher lending rules which came into force in April may be having an effect as banks and building societies are now required to ask borrowers tougher questions about whether they can afford their repayments both now and in the future.

However, Capital Economics said it was surprised by the figures. The analysts told the BBC that “given that the regulations came into force in April, the continued weakness in lending is becoming more of a puzzle” and predicted that the “weak patch” would not last much longer.

Howard Archer from IHS Global Insight agreed, saying that the fall in mortgage approvals points to a more fundamental cooling in the property market. He said: “That mortgage approvals are still falling and in September were 19.9% below their January peak levels – after lenders have now likely got to grips with the new mortgage regulations – points to an underlying moderation in housing market activity.”

Housing market slowing faster than expected

Earlier this year the Bank of England governor Mark Carney said that a potential build-up in household debt due to rising house prices posed the biggest domestic threat to Britain's economic recovery.

However, the latest data appears to show that the housing market is slowing faster than the Bank had been expecting. Its forecast in August that mortgage approvals would average 75,000 a month in the last three months of 2014 looks “implausible” according to economists.

“As well as the downside risk from euro area weakness, these data confirm housing activity is another area where the BoE's August forecasts are now starting to look too optimistic,” said Sam Hill, an economist at RBC.

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