Mortgage approvals fall again

According to figures produced by the British Bankers� Association mortgage approvals during October fell for the third consecutive month to a new record low, providing further evidence of a housing slowdown.

Remortgage approvals also fell 17.1 per cent during the month which saw total mortgage approvals drop to 44,105 from September�s total of 53,997. In value terms the approvals for house purchases amounted to �6.8 billion, 34.1 per cent lower than in October 2006.

David Dooks, director of statistics at the BBA commented that the data provided evidence of a rapidly slowing mortgage market and that consumers are limiting their personal borrowing accordingly.

�The cumulative impact of the year�s interest rate rises, increased pressure on household finances, the implementation of the home information packs and the consequential impact of the credit crunch have all played their part in suppressing current supply and demand.�

Many experts are now predicting a fall or stagnation in house prices next year. Nationwide Building Society has predicted zero growth in house prices over 2008, although some experts are predicting falls with Capital Economics� property economist Brigid O�Leary estimating a 3 per cent drop. She said:

"It is possible that the drop in mortgage approvals could be a temporary response to the market upheaval as a result of the summer�s financial crises.�

In addition to the reduction in mortgage approvals, the spectre of serious arrears and rising repossessions is also a threat to the state of the housing market. Almost one million mortgage holders are on fixed rate or discounted mortgage deals that are due to expire, and will be seeking a replacement. Remortgages at favourable rates are now harder to find as banks and building societies have significantly tightened their lending criteria, and also reduced the percentage points between discounted products and SVR mortgages, making even short-term deals a lot more expensive.

That double shock may potentially price many homeowners out of the remortgage market altogether and leave them with no option but to revert to SVR by default.

Additionally, many �non-standard� borrowers, such as the self-employed will also suffer in the short term in their search for remortgages as many lenders have withdrawn those products or left the market entirely. The buy-to-let mortgage market is also heading for tough times as lenders cannot attract the necessary funds. Most lenders in that sector do not have access to customer savings in the way that banks and buildings societies do as they therefore rely solely on the wholesale markets, which are now reluctant to advance them funds. Given those factors many experts are not expecting next month�s approval figures to show any improvement.

By : Elisha Burberry