Yahoo Finance Mortgage approvals to slump to lowest level since financial crisis
Mortgage approvals are on track to slump to their lowest level since the financial crisis as high interest rates continue to hammer borrowers, figures show.
Based on the current trajectory, the number of home loans agreed will fall this year to the lowest level recorded since 2008, according to Capital Economics.
It comes as Bank of England data showed the number of mortgage approvals for home purchase fell to 48,690 in April, down from 51,488 in March, quashing hopes of a housing market recovery.
The figure marks a 26pc year-on-year drop and far below the rise to 53,000 expected among analysts, who had predicted growth following the steady decline in mortgage rates since the autumn mini-Budget.
Andrew Wishart, who runs the Capital Economics’ housing service, said mortgage approvals will fall from 752,000 in 2022 to 540,000 across this year.
This would represent a loss of 212,000 deals, or just a little more than half the number of mortgages agreed in 2021 during the peak of the pandemic property boom.
The last time mortgage approvals were so low was in 2008, when the number of loans hit 523,316 during the credit crunch, Bank of England data shows.
April’s drop came despite the fact that buyer demand is falling even as quoted mortgage rates have eased.
The average rate on newly drawn mortgages – a figure which rises far slower than the average quoted rate because it includes deals that were agreed many months earlier – rose to 4.46pc in April, up just 0.05 percentage points compared to March.
“Even with mortgage rates below 5pc, many would-be buyers were priced out of the market,” Mr Wishart said.
The data is a major warning sign that the housing market is far from recovering, just as it is about to be hit by further increases in mortgage rates.
The Bank’s figures also showed that gross mortgage lending fell to £17bn in April, down by 14pc since March and the lowest level since July 2021.
Separate research indicated that house prices have slumped 3.4pc over the last year as expected increases in interest rates weigh on the market.
House prices unexpectedly fell for the eighth time in nine months in May, edging down 0.1pc compared with April, Nationwide data showed, with the average property now worth £260,736.
Homeowners could soon feel more pain. Higher than expected inflation data last week has triggered large jumps in gilt yields and markets’ expectations for future borrowing costs, which are already pushing up mortgage rates.
“Mortgage rates will rise back above 5pc imminently, and based on our forecasts will reach a peak of 5.7pc in early 2024. If so, demand will take a further leg down,” Mr Wishart said.
Lucian Cook, head of residential research at Savills estate agents, warned that a second dip in house prices is likely in the pipeline.
“As we look forward, the expectation that Bank base rates will have to rise further to combat inflation points to a further affordability squeeze for home buyers in the second half of the year,” Mr Cook said.
Benjamin Trevis, of the Centre for Economics and Business Research, warned that high rates will hit existing homeowners hard when they come to the end of their fixed rate deals.
“As a result of significantly higher mortgage rates, this will likely lead to an increase in repossessions and deter some market activity,” Mr Trevis said.
Nationwide’s chief economist Robert Gardner said that “headwinds to the housing market look set to strengthen in the near term”.
