Mortgage approvals for house purchase renewed the downward trend in February, reversing January’s slight recovery. They fell 3.5% to 71,400, down from 74,000 in January, according to the latest data from the Connells Survey & Valuation Mortgage Approvals Tracker (see Chart 1). Non-seasonally adjusted approvals rose to 65,400 from January’s 50,000.
February 2008 is the weakest February since Bank of England records began in 1993. Only June 2005 was a weaker month for homebuyers taking out mortgages, as the housing market slowed to a halt following the 2004 succession of base rate increases.
Compared to February 2007, the decline in approvals is 40.5%. Mortgage approvals for house purchase have now fallen in ten of the last twelve months.
Chart 1
Ross Bowen, managing director of Connells Survey & Valuation said: “February’s fall in mortgage approvals is not as dramatic as the fourth quarter of last year, but it does reflect both reduced appetite for borrowing and a tighter supply of lending from mortgage providers. Money market rates have climbed again in recent weeks, keeping mortgage rates relatively high, despite February’s cut in base rates. Meanwhile, confidence among homebuyers is more subdued. Those with plenty of equity in their homes or large deposits have much more flexibility and can borrow more freely, but first time buyers and those with a poorer credit history are struggling to find lenders who can help them.
“We are seeing stronger demand for remortgage business than for new mortgages. Those not moving tend to have access to better deals and need not worry about the direction of house prices.”
House prices were almost unchanged in February at £216,143. The mix-adjusted standard house price was just 4.5% higher at the end of February than twelve months previously, meaning that house prices have risen only fractionally ahead of retail price inflation over the last year. (see Chart 2)
Ross Bowen concluded: “A slight improvement in the prices of two bedroom homes kept house prices flat in February. Larger homes, and one bedroom properties dropped slightly in value. The market is showing no signs of a major correction however, and there are very few forced sellers. It’s becalmed – and that’s no surprise given the lack of availability of mortgage finance.”
Chart 2
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