Bad news from the British Bankers Association (BBA): the number of new mortgage approvals given in the UK fell to its lowest level since records began in December.
In November this year 43,944 people got the go ahead to buy their new homes. The next month that number fell to 42,088. This might not look like much of a fall month on month but compare it to December 2006 and you will see the problem: it represents a fall of 37.8%.
And it isn’t just the number of housing changing hands falling, it is prices too: the BBA report follows data from surveyor’s body RICS, property website Rightmove and HBOS, the country’s largest mortgage lender, all of which shows prices falling. (For more on the latest reports and predictions on the state of the UK property market, see: Prepare for negative equity and repossessions).
So just how bad is it out there? Terrible, says BBA statistics director David Dooks. The market is being squeezed from both sides. The credit crunch is making it hard for banks to lend out money in the same sort of volumes they did last year but even if they had the cash to offer there is no guarantee any one would want it: ‘demand for mortgages has also softened in the face of increased borrowing costs and lower disposable income.’
Or as CityWire put it, ‘Mortgage borrowers go on strike’. We suspect they will stay on strike. It is now perfectly clear, we think, to all but the most optimistic of property ‘investors’ that the bubble in UK prices is deflating – and fast. Who would buy a house today when they can be almost certain it will be cheaper tomorrow?
But the news gets worse. Not only are consumers shunning the property market, they’re starting to avoid the high street too. The BBA also reported a fall in the number of credit card transactions made in December, whilst – and this is really bad news for the credit companies as it represents a shrinking of their businesses – repayments continued to outstrip new lending.
So what next? Our guess is that lenders and retailers will really push for big interest rate cuts at the the next Bank of England meeting; that they’ll get a small one; that it won’t work (you can’t make people borrow money if they don’t want to); that they’ll push for more; and that in about five years house prices will start rising again. That’s how it usually happens anyway.