The number of mortgages approved for house purchases slumped to an all-time low in May, leading lenders warned yesterday, as Britain's housing market crisis took a turn for the worse.
The British Bankers' Association said just under 28,000 mortgages for homebuyers were approved last month, 57 per cent fewer than in May last year and the lowest number it has recorded since launching surveys of the market in 1997. Approvals were 20 per cent down on April, as mortgage lenders continued to raise interest rates and withdraw products from the market.
David Dooks, the BBA's director of statistics, said: "Measures of mortgage activity were lower in May as a result of tighter lending criteria and economic pressures on households."
Housing market analysts warned the figures suggested the housing market was continuing to decline rather than stabilise. "[They] suggest the actual level of transactions have further to decline over the coming months," said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.
"The sheer scale of the collapse in turnover will inevitably have real implications for the economy and make it hard for the Bank of England to accede to the wishes of the money markets and raise the base rate to combat inflation fears."
Howard Archer, chief economist at Global Insight, added: "The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions."
The lack of mortgage approvals is likely to have serious implications for house prices, with many analysts now revising their views on how far the market will fall. Professor David Miles, a former mortgage adviser to the Government said last night he expects prices to fall by an average of 10 per cent over 2008.
Michael Saunders, chief UK economist at Citigroup, warned the total falls could be even worse, with the market taking some time to bottom out. "These figures highlight again the extreme weakness of the housing market," he said. "Our base case – base case, not worst case – is for house prices to fall 20 per cent. It may turn out even worse."
Alistair Darling, the Chancellor, said yesterday that the Government would take action if mortgage lenders did not take a sympathetic approach to borrowers caught out by the correction.
"I'm very concerned that people ought to be treated fairly, especially people coming off fixed rates and going on to different rates," Mr Darling said. "We have met the Council of Mortgage Lenders to try to reach an agreement to ensure people are treated fairly, but if that isn't happening I will ask the [Financial Services Authority] to pursue the matter."
However, there is little sign of any fall in the cost of mortgages. Moneyfacts, the personal finance analyst, said yesterday that the average cost of a two-year fixed rate mortgage has now risen above 7 per cent for the first time in more than 11 years.Reuse content