Bank of England Signals Mortgage Approval Drop

 

UK mortgage approvals fell more than expected in December 2010 to the lowest levels since March 2009 and could continue to slowdown any recovery in the housing market.

The Bank of England stated that mortgage approvals totalled 42,563 in December 2010, falling from 47,287 in November 2010. This meansare now running at below 50% of the long-term average, indicating that further house price falls may be still to come.

In December, net lending fell by £298 million as homeowners repaid more than they borrowed - only the 3rd time this has happened since 1993 when records were first started. The Council of Mortgage Lenders (CML) predicts that net lending will drop even further to a total £6 billion this year.

Chief UK economist of IHS Global Insight, Howard Archer, commented: "Even allowing for the fact that the severe weather likely hit mortgage activity in December, the Bank data point to a housing market stuck in the doldrums. We maintain that house prices will fall by around 10% from their peak 2010 levels by the end of 2011."

This view is echoed by Nida Ali, economist at Ernst & Young, who also predicts that poor availability of finance will have an adverse impact on the property market: "The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011."


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