UK Mortgage Famine

by Mark Johnston

Figures released recently suggest that the United Kingdom is stuck in the midst of a mortgage famine caused by the financial crisis. Ever since the melt down in the sub prime mortgage market, lenders have been cautious of lending to potential UK home buyers and have tightened up their lending criteria in an attempt to sure up their balance sheets and reduce risk in their mortgage portfolio.

property pricesThe figures show that the number of approved loans fell to an incredible sixteen month low. Only 31,767 mortgage were agreed in the whole of the UK during the month of August. The British Bankers Association recorded the lowest figures since April last year which worried some city insiders.

This is the third month in a row that mortgage approvals have dropped any many are wondering if we are now in the middle of a mortgage famine. The news has shocked the industry especially since it was thought that the positive results in the property market during the summer was a sign that things were on the up.

Banks and building societies have been restricting lending to only a few who have massive deposits and incredible credit histories. Lenders hope to reduce the risk of default and avoid another credit crunch by operating in a much more stricter way but this is chocking the market. First time buyers are unable to get finance which is having a knock on effect of the UK’s overall property prices.

Nick Hopkinson, director at Property Portfolio Rescue, said: “The ‘mortgage famine’ is continuing to worsen. Against this backdrop, house prices are going to fall further just as certainly as the autumn leaves will fall off the trees in the next couple of months.”

Price inflation has been dropping over the last few months. House price inflation has dropped from 6.6% back in April to 4.6% last month. The April figure could have been impacted by the short lived boom at the time which was mainly attributed to a shortage of homes for sale. Average house prices have now fallen to £168,000, but this often depends on which indices are tracked.

The property economist at Capital Economics, Paul Diggle said: “The August lending data from the BBA was always likely to add to the picture of a subdued mortgage market. There is little prospect of a meaningful improvement in mortgage approvals for at least the next 12 months. But the weak mortgage market could well continue for much longer than that.”

A growing number of market watches are now warning that the mortgage market in the United Kingdom will remain weak for at least the next twelve months. The large fall in mortgage approvals this month seems to back up this view. Many now believe that the housing market recover last year was short lived and the current position will return to historic lows.

David Dook, the British Bankers Association stats director closed by saying: “Demand for mortgages continues to be weak despite more properties reportedly coming on to the market. Even with stable or falling house prices the current economic climate makes it unlikely that demand will pick up in the near future.”

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