Mortgage Approvals Continue to Decline

Thursday, 05 June 2014

The latest figures from the Bank of England show that mortgage approvals fell for the third consecutive month in April, reaching their lowest level since July 2013.

Economists have suggested that the primary reason for the tightening of mortgage lenders' purse-strings are the new lending rules introduced under the Mortgage Market Review (MMR).

Brought in by the Financial Conduct Authority (FCA), the MMR requires lenders to delve much deeper into the finances of applicants; looking not just at earnings and bank statements, but analysing household expenses like food, utilities and even spending on clothes and leisure. The aim being to prove that buyers can still afford mortgage payments in the event of interest rate rises.

As concerns continue to be aired over the apparent heating up of the UK housing market, the question is whether MMR truly has had a cooling effect on eager buyers.

Speaking to The Guardian, IHS Global Insight Chief UK Economist Howard Archer argued that MMR "has at least temporarily taken some of the steam out of housing market activity," adding, "while the MMR only came into effect on 26 April, it is evident that some banks raised their mortgage lending standards before the new regulations kicked in."

However, there remains disagreement among the ranks of the City elite as to whether the rules are having the desired effect. A 'senior banking source' told the BBC that these figures are simply the result of a bottleneck of mortgage applications created while lenders' staff get to grips with the new legislation.

What is clear is that, regardless of the decline in mortgage approvals, house prices are still on the rise. According to the Land Registry, prices across England and Wales rose by 1.5% from March to April, pushing the total increase to 6.7% for the year. These increases may reduce the number of mortgages approved further, as fewer buyers are able to climb on the ladder, and further cool the market. But economists continue to suggest that the Bank of England could yet intervene to prevent house prices spiralling out of control.

Sources:
1. www.bankofengland.co.uk/statistics/documents/mc/2014/apr/moneyandcredit.pdf  
2. www.theguardian.com/business/2014/jun/02/mortgage-approvals-fall-affordability-tests-housebuyers  
3. www.bbc.co.uk/news/business-27661403?   
4. www.landregistry.gov.uk/media/all-releases/press-releases/2014/market-trend-data-april-2014  

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