The number of mortgages rubber-stamped by banks dropped again in November, although by less than analysts had expected. Nevertheless, the figure is a 17-month low, underlining the trajectory of the market.
During the month, banks approved 59,029 mortgages, down from 59,511 in October, but above the 58,500 analyst consensus. The fall has been a long one (22.9 per cent) from the 74-month high of 76,611 in January 2014.
There could be a bright side: the fact approvals beat expectations could point to weakness in the housing market beginning to bottom out. House prices grew a miserly 0.2 per cent in December according to Nationwide, slower even than November’s 0.3 per cent.
Mortgage approvals have been impacted by the Bank of England’s Mortgage Market Review (MMR), which subjects borrowers to “stress tests.” The tests assess if they would still be able to keep up with payments in the event of financial difficulties, while the rules also impose a price to earnings ratio cap of 4.5, meaning the total cost of a mortgage cannot exceed 4.5 times the borrower’s income.
Howard Archer, chief economist at IHS Global Insight, said:
The weakening of buyer interest in houses may be close to bottoming out and we see it picking up to a limited extent in 2015 from current levels. In addition to the stamp duty reform, significant support for housing market activity should come from a number of factors: elevated consumer confidence, high and rising employment, and still-low mortgage interest rates (especially as the Bank of England looks unlikely to raise interest rates before late 2015). In addition, earnings growth finally appears to be firming and we expect it to gradually improve over the coming months.