Can’t get approval? Mortgage approvals fall again

One measure of the level of activity in the housing market is the number of mortgage approvals for house purchase. While a small number of approvals will not result in transactions because house purchases can ‘fall through’, the current number of approvals is, nonetheless, an extremely good guide to transaction levels in the near future. The seasonally-adjusted approval number for January 2010 reported by the Bank of England was 48,198. This has drawn a fair amount of attention because it was the lowest since May last year and it was the second monthly fall in a row.

The increase in mortgage approval numbers seen in the second half of last year represented an increase in housing demand and helps in understanding why house prices rose over the same period. But, we should perhaps put January’s approval figure into further context. 2008 saw mortgage approval numbers collapse to only 451,350 (or roughly 37,600 per month) from 1,323,609 (or roughly 110,300 per month) in 2007. The average monthly number of approvals across the last decade was 95,000 – roughly double January’s number.

So what a trawl through the figures shows is that the current level of approvals is by historic standards low, but still above the incredibly low levels seen during 2008. But, more than this, it suggests that we perhaps need to get accustomed to relatively low mortgage approval numbers. With financial institutions and households alike needing to remain cautious and rebuild their respective financial positions, we should expect ‘new norms’, so far as activity levels are concerned, for quite some time to come.

Articles

UK mortgage approvals fall for second month in January: BOE RTT News (1/3/10)
Mortgage approvals drop sharply BBC News (1/3/10)
UK mortgage approvals drop to eight-month low Bloomberg.com, Scott Hamilton (1/3/10)
Mortgage lending dives after end of stamp duty holiday Independent on Sunday, James Thompson (14/3/10)
Housing market turnover falls despite record low rates on new mortgages Financial Times, Norma Cohen (13/3/10)
Fears grow that new mortgage drought could hit house prices Times Online, James Charles (13/3/10)

Data

Mortgage approval numbers and other lending data are available from the Bank of England’s statistics publication, Monetary and Financial Statistics (Bankstats) (See Table A5.4.)

Questions