Mortgage approvals drop to record as lenders ax deals amid fears house prices will collapse
- In May, only 9,300 mortgages were issued to purchase housing
- That is less than about 15,800 in April and 90% below the February level
- Mortgage approvals are a third lower than the worst month of the financial crisis
The number of new home purchase mortgage approvals further declined to record lows in May as the corona virus crisis continues to dominate the housing market.
Although real estate agents in England were allowed to reopen from mid-May and real estate portals say they’ve seen tremendous interest since, the number of potential home buyers taking out mortgages to buy real estate has continued to fall.
According to the latest statistics from the Bank of England, only 9,300 mortgages were issued in May to buy housing, down from about 15,800 in April, about 56,100 in March and 90 percent below February levels.
Falling further: the number of mortgages and mortgages fell in May
Mortgage approvals in May were also a third lower than the worst month of the 2008 financial crisis, which “really puts the impact of the pandemic on the economy into perspective,” said Paul Stockwell of Gatehouse Bank.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says it is not surprising that lending has declined given the ‘devastating impact’ of the corona virus on the real estate market. “With lockdown, meaning lenders were unable to send appraisers to view real estate physically, the number of approved mortgages dropped significantly,” he says.
Lenders have abolished mortgage loans for people with small deposits, fearing a house price crash, which could throw buyers into negative equity and limit the money that banks can earn back if they have to take back houses.
Economists predict house price declines this year, with forecasts ranging from a more moderate 4 percent decline – which would still be the biggest decline in more than a decade – to a more extreme 16 percent decline, as predicted by the Bank of England.
Josie Dent, senior economist at the Center for Economics and Business Research (CEBR), says mortgage approval has declined not only because lenders are more cautious, but also because potential home buyers prefer to wait because they suspect prices may drop.
She said, “Transaction numbers are still kept low by tighter credit conditions. Mortgage lenders have become much more careful when lending and asking for larger deposits, limiting the number of people who can buy a house. ‘
And added, “Many people are also likely to be put off by the purchase as house prices are expected to fall, and would rather wait and see if they can get a better deal.”
Mortgage approvals were a third lower in May than in the worst month of the financial crisis
Some households may also feel that their finances are too insecure to move at this time, said Laura Suter, personal finance analyst at investment platform AJ Bell.
Still, net mortgage loan withdrawals rose to £ 1.2 billion in May, after the closed housing market led to zero withdrawals in April. The monthly increase in loans was the result of more new household loans and not of lower repayments.
Real estate websites have claimed to have seen an initial surge in buyers’ interest and activities since restrictions in England were lifted on May 13 and prospective buyers were allowed to view real estate again after a seven-week hiatus.
On the first day of the reopening of the housing market, the number of home movers visiting real estate returned to pre-lock daily levels, rising 4 percent on the same Wednesday in 2019, according to real estate website Rightmove.
Real estate website Zoopla said sales agreed in the past four weeks have risen just above pre-Covid levels, with most of the increase in northern cities.
Meanwhile, RICS ‘latest residential market survey indicated a slight improvement in the sales outlook for the next 12 months, but the warned general sentiment remained “cautious.”
Howard Archer, chief economic advisor to the EY ITEM Club, says: “Although the easing of the housing market in England came from easing restrictions in England on May 13, it apparently happened too late to lift mortgage approvals for the month. ‘
Gatehouse Bank’s Paul Stockwell adds: ‘June will be the first full month of real estate transactions since the UK has locked into lockdown and it will be these numbers that are being watched closely as a measure of the determined buyers and sellers who come to the market have returned. ‘