Last month, UK mortgage approvals fell to their lowest level since June, according to new data from the Bank of England.
Sharp drop in approvals
There were just under 49,000 home loan approvals in February, a big drop from January’s total of around 58,000 approvals – which had been the highest in over two years.
Experts had predicted a fall in approvals may occur from 24 March onwards, when the stamp duty holiday for first time buyers (letting them off the usual 1% rate) came to an end.
However, the Bank of England figures demonstrate a fall in mortgage approvals even before the end of the two year concessionary period. This indicates that those hoping to avoid stamp duty acted to take out mortgages in plenty of time, rather than risking missing the deadline with last-minute applications.
Borrowing stifled by restrictions
The latest Nationwide House Price Index (highlighting property prices during February) revealed a 1% month-on-month drop in UK house prices, the largest single monthly drop in two years.
The drop in mortgage approvals – likely to trigger further falls in house prices – is thought to be due to the tightening of mortgage lending criteria, coupled with deteriorating employment conditions and continuing pressure on household budgets.
Existing mortgage holders also squeezed
The latest mortgage approval figures come on the back of rate hikes by several banks which will make things more difficult for existing mortgage holders.
Earlier this month, Clydesdale and Yorkshire Banks followed Halifax and RBS in announcing plans to raise the Standard Variable Rates (SVRs) for their mortgages.
Many people whose mortgage deals have come to an end are currently on their banks’ SVRs, taking advantage of the fact that – because of the very low base bate – these rates are relatively low too.
However, when SVRs rise, many consumers who are already operating on tight budgets are going to struggle to meet the higher monthly mortgage repayments.
In addition, there is evidence that some mortgage lenders may be exercising double standards, having not fully passed on the cuts on the base rate when it first happened. When Which? looked at mortgage SVRs in July last year, we found that 95% of lenders had failed to fully pass on cuts in the base interest rate to their SVR mortgage customers.