Mortgage approvals fall almost 50%

by Kay Murchie

According to figures from the British Bankers Association (BBA), there were just 35,417 new mortgages approved for house purchases last month – 18% lower compared with the previous month.

Compared to March 2007, approvals were down 46% – the lowest figure for over a decade.

The slump in mortgage lending by the UK’s biggest banks is a result of the credit squeeze and how banks are tightening their lending criteria as they find themselves restricted by the shortage of funds.

David Dooks of the BBA said the consequences of low banking sector liquidity show up clearly in March data – reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals.

The BBA’s members make up approximately 70% of all mortgage lending in the UK.

The tightening in the credit crunch is continuing to take its toll on the residential property market, according to Simon Rubinsohn of the Royal Institution of Chartered Surveyors.

The Bank of England’s latest swap scheme with the banking sector should help provide a little more liquidity for lenders, but is not going to turnaround the current challenging environment overnight, added Mr Rubinsohn.

Banks are warning that mortgages won’t become cheaper and could get even more expensive over the next few months.

A senior City source warned for now, mortgage pricing will remain high. If anything, it will increase in the short term.

The City source blamed the ’stubbornly high’ cost of raising money in the money markets, which banks use to lend to customers.

Michael Coogan of the Council of Mortgage Lenders said in the short term the trend of increasing prices and products being removed from the market is not going to be reversed.

As and when the banks start lending to each other, the rate for lending will go down and that means that that will start to bring the price down but it is not going to be a dramatic reversal. It is going to be a slow process at best, concluded Mr Coogan.