JUST 48,700 mortgages were approved in July, according to data published yesterday by the Bank of England, raising fears that the UK housing market is at best drifting sideways and at worst heading for a double-dip recession.
Although the small rise was better than the dip to 46-47,000 that the market had expected, economists were extremely pessimistic about the outlook for the British property market. They pointed out that approvals are still well below the average of 93,000 per month over the past decade.
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: “The figures provide further confirmation that the housing market is heading for a double dip, with net mortgage lending pretty much flat and the number of mortgage approvals remaining very low.”
“The figures for mortgage approvals, a proxy for activity, tend to be well correlated with prices and the latest figures clearly point to falling prices over the second half of this year and into 2011, particularly now that supply shortages have eased,” Goodwin added.
Economists pointed to subdued demand for housing caused by high unemployment levels – which could rise further once public sector spending cuts come into effect – as well as poor household income growth and affordability.
Although the interest rates are at record lows, these are not being fully passed on to borrowers, who must meet more stringent lending criteria.
Simon Rubinsohn, chief economist at the Royal Institution for Chartered Surveyors (RICS) said: “A lack of mortgage finance remains a key problem for many borrowers looking to take their first step on the property ladder, with the high deposits required still proving to be an obstacle for many. Uncertainty over the outlook for the market may also be discouraging would be buyers.”
The poor approvals data adds to a string of cheerless figures for the UK housing market both in terms of house prices and mortgage lending. Only last week, the British Bankers’ Association data showed no change in net mortgage lending in July on the previous month. The impact will be felt in tomorrow’s Nationwide August data.