Mortgage News

The lowest levels of approved home loans in the last five years were recorded in October, according to figures released by the Bank of England. This news can only confirm that the housing market is indeed cooling and have lead to analysts predicting that interest rates have reached their peak.

Since May there has been a steady fall in the number of approved mortgages but there was a sharp drop in October, falling to only 83,000 – not since January 2000 has it been lower, the Bank of England stated. The approvals for October were valued at £21.1 billion as apposed to £21.6 for September.

It was for the forth month in succession that net mortgage lending fell to £7.519 in October – only in March 2003 has it been at a lower level.

With consumer credit growth dipping for the third month in a row, it can be said that the Bank of England’s five increases in interest rates have hit spending on the high street. Consumers also borrowed less in October with only £1.5 billion compared to £1.6 billion in September. These softer figures could signal an uninspiring trading period during the run up to Christmas and could damage retailers’ profit margins significantly.

It is anticipated that the Bank of England will leave interests rates at 4.75% as we are about to enter the next year due to the slowdown in consumer credit and mortgages. It has been suggested by the British Bankers' Association, the Building Societies' Association and Council of Mortgage Lenders that there is a slowdown in new home lending.

The Global Insight economist Howard Archer believes: "The steady stream of markedly softer housing price and activity data are likely to fuel the Bank of England's concern that an 'abrupt' housing market correction could occur. Consequently, interest rates seem certain to remain unchanged not only next week, but well into 2005."

George Buckley of Deutsche Bank stated that the mortgage data had confirmed that new lending to individual applications has been on the decline. He continued by adding that this fall had gained momentum by the descending number of first-time buyers, the lowest it has been in 30 years.

With the total of net lending to individuals falling to £9.068 billion from the previous months £9.19 billion, this was the lowest reading for lending secured on homes and consumer credit since November 2002.