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Mortgage approvals for house purchase fall to lowest level since March 2013

Jessica Bird

May 1, 2020

mortgage approvals

Mortgage approvals for house purchase have fallen to 56,200, the lowest level since March 2013, according to the Bank of England’s March 2020 Money and Credit report.

The analysis found that the rate on new variable-rate mortgage borrowing fell by 17 basis points in March, but the cost of fixed-rate mortgages was largely unchanged.

Evidence of a decline in housing market activity started to become apparent in the March mortgage approval statistics, which fell by just over 20%.

This was a broad-based fall across reasons for applying for a mortgage.

Approvals for house purchases fell by 24%, and approvals for remortgage fell by 20% to 42,600, the lowest level since August 2016.

Other approvals, including for withdrawing equity, fell back 17% to 12,000.

Mortgage borrowing picked up a little in March, with a net increase of £4.8bn.

The annual growth rate also rose a little, to 3.6%.

Mortgage borrowing tends to lag approvals, so this strength is likely to reflect strength in approvals in previous months.

The interest rate paid by individuals on floating rate mortgage borrowing fell in March, following the reductions in Bank Rate on 11 and 19 March.

The effective interest rate paid on the outstanding amount of floating rate mortgage fell 11 basis points to 2.85%, and the rate on new floating rate loans fell 17 basis points to 1.83%.

In contrast, the effective rate on fixed-rate mortgages, accounting for 98% of new mortgages, remained relatively stable.

Simon Gammon, managing partner at Knight Frank Finance, said: “The March data is showing the early effects of the outbreak on mortgage markets that had just a month earlier been at their most active in five years.

“Unless the housing market recovers quickly with the necessary government support, we believe as many as 350,000 mortgages for house purchase, including 150,000 for first-time-buyers might no longer take place this year.

“The scope of potential losses in tax revenue for everything from Stamp Duty to VAT raised from home renovations underlines how important the housing market is to the wider economy.

“The good news is mortgage lenders that had been in retreat a few weeks ago are starting to look beyond the lockdown.

“Banks are trying to re-establish their pipeline of new business by raising the loan-to-value ratios they will lend at, increasing the maximum loan sizes for which they will accept remote valuations and re-introducing products they had previously withdrawn.”

Jeremy Leaf, North London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (RICS), said: ‘This is one of the first housing market surveys to show the impact of coronavirus on the market as it confirms a sharp fall in mortgage approvals, which we also noticed almost instantly.

“This report is always a useful lead indicator of what is about to come in the market and it is on the money this time.

‘The only good news is that it seems most deals have not been cancelled or withdrawn unless the buyer is employed in an industry particularly badly affected by the pandemic.

“Most seem to be prepared to proceed hopefully sooner rather than later when restrictions are eased and surveyors can start to revisit properties again.”


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