Will mortgage approval levels recover?
July 8, 2008
With the ongoing global credit crunch causing huge problems for mortgage lenders when it comes to raising finance to fund their mortgage lending operations, mortgage approval levels have been taking a hit for some time. The current economic climate means that many consumers are unable to consider taking out a mortgage, with many household budgets already overstretched, and this is also affecting approval levels with fewer people applying for a mortgage. Lenders have also increased a range of mortgage fees, such as interest rates, deposit levels, and arrangement fees, which has affected consumer ability to afford to take out a mortgage.
All of these problems have been reflected in falling mortgage approval levels, which are partly attributed to the fact that fewer people are qualifying for a mortgage due to tighter credit conditions stemming from the global credit crunch, and partly due to fewer applications for mortgage from increasingly wary consumers who are being mindful about increased expense as well as about ongoing house price falls. In May mortgage approval levels slumped to a new low according to recent reports, with fewer than 28,000 new loans being approved during the month. This was a fall of 20% from April’s already low figure, and a fall of 56% from last May.
The figures come from the British Banker’s Association, and were described by one industry official as worrying. Howard Archer, economist at Global Insight, said: ‘The BBA data graphically highlight that housing market activity is currently being throttled by stretched affordability and tight lending conditions.’
Mortgage interest rates for new borrowers have also been increasing, even though the base rate has dropped three times between December and April and has remained static since April. One official said: ‘As the rates on offer increase, so does the relative risk. More and more borrowers are likely to find the increased repayment too much to bear. These are continuingly worrying times for anyone coming to the end of their current mortgage deal. However, it seems not all is lost as there could be some light at the end of the tunnel for borrowers.’
He continued: ‘Today, Swap rates have decreased from the 6.52% high last week, by 0.16% to 6.36%. We hope that this recent downturn is not short lived and trust that lenders will play a fair game by reflecting this decrease in the rates that they will have on offer in the next few weeks.’
The British Banker’s Association, which released the figures, said: ‘Measures of mortgage activity were lower in May as a result of tighter lending criteria and economic pressures on households. Only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders.’
Another industry official stated: ‘The driving force behind these falls has been the ongoing credit crisis, which has significantly reduced accessibility to mortgage finance and prevented base rate cuts from being passed on to the consumer. This has occurred against a backdrop of a weakening outlook for the economic growth and reduced buyer confidence.’
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