David Prosser: Mortgage approvals and the double dip

Click to follow
The Independent Online

Outlook Ready for another housing market shock? Yesterday's mortgage figures from the British Bankers' Association provided more evidence that the trouble has started. Even those to whom the banks are willing to lend had been putting off decisions about borrowing ahead of the Comprehensive Spending Review. Chances are they are not going to feel confident enough to take the plunge any time soon, either. Prices are bound to fall, because the supply of buyers (especially first-time buyers) is simply drying up.

The Financial Services Authority's new super-safe rules on whom the banks can lend to are going to take thousands of people out of the market. According to the Council of Mortgage Lenders, which applied the rules to loans approved over the past few years, many of them would have been perfectly able to afford repayments during the worst of the last recession. One of the big problems with the FSA is that instead of trying to learn lessons from its past mistakes, it prefers to overreact massively, regardless of the consequences. The consequences, in this case, could easily be a crash.

Is this necessarily a bad thing? After all, it would make houses more affordable, and that might be welcomed by a generation which is going to emerge from higher education with mortgage-sized debts (if they can get in in the first place) and the pain of having to pay for the mistakes their parents made. Many of them will be retiring on index-linked, final-salary pension schemes that are now history in the private sector (and probably won't last long in the public sector). The trouble is, like it or not, the housing market has a huge impact on confidence. Retailing, for example, is heavily dependent on it, and retail is a huge part of the British economy. All this, and money being taken out of people's pockets by benefits cuts and VAT rises.

Maybe I'm extrapolating too far from the data. Maybe the market will pick up because people who have been putting off moving, for example, won't be able to do so for ever. Maybe. All the same, my feeling that Britain will avoid a "double-dip" downturn isn't anything like as strong as it once was.