Mervyn King is a brave man: he’s just been asked to take on another term as governor of the Bank of England and instead of muttering about wanting to spend more time with his family – as most of us would have – he’s agreed. We suspect he is going to regret it.
To see why just take a look at mortgage approvals data for December. The number of new loans fell to 73,000 in December, the lowest level since records began in 1999, and, crucially, one that is even below the trough reached during the 2004/05 downturn. This is horrible news. There is no way that even the most bullish of the bulls could look at these numbers and find a bright side. There simply isn’t one.
It’s no surprise that the number of loans is falling. Banks and building societies have tightened lending standards since the US subprime mortgage collapse really kicked off. Getting hold of a 100% loan is all but impossible now and institutions such as Nationwide and Alliance & Leicester are jacking up the rates on their tracker mortgage rates to try to improve their profit margins. The result? Its harder to get a loan and if you can get one it’s going to cost you. Bloomberg reckons that the average homeowner switching to a variable rate mortgage in the next 12 months after their fixed rate deals end will have to find an extra £210 a month.
The question now has to be not whether house prices will fall – but by how much? MoneyWeek regular James Ferguson has a pretty good idea – read his latest on the UK property market here: Here comes the house price crash