The slowdown follows the slowest increase in consumer credit growth since April 2016
British banks approved the fewest mortgages for house purchase in more than a year during October 2017, according to industry trade body UK Finance. Approval figures for October stood at 40,488, down from 41,576 in September 2017.
The Bank of England’s decision to increase interest rates for the first time in more than a decade, from 0.25% to 0.5%, would probably ‘exacerbate the downward trend’ said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“This appears to be just the start of a bigger downturn,” Tombs said in an article on The Guardian’s website. “Housing market activity likely has cooled further in recent weeks, given that mortgage rates have moved swiftly higher and consumer confidence has weakened since the hike by the Bank of England’s monetary policy committee.”
The Autumn Budget included Chancellor Philip Hammond’s decision to abolish stamp duty for first-time buyers on all properties up to £300,000, although this would do little to counter the downturn, said Tombs.
There is concern that scrapping the stamp duty could backfire by pushing up house prices and mainly benefit those who already own homes. The Office for Budget Responsibility warned that the tax break was likely to see a 0.3% increase in house prices, with most of the rise coming in 2018.
The low mortgage approval rate adds to a general climate of fewer homeowners, caused in part by a combination of a shortage of homes for sale and customer reluctance to invest in major purchases at a time when real pay rates are falling.
The story is very different for existing homeowners, as remortgage rates increased to take advantage of competitive offers before the Bank’s rate rise in November. There were 34,036 loans approved for remortgaging in October 2017 according to UK Finance, up by 11.6% compared with September, and 37% higher than at the same point in 2016.
It’s not all bad news, however, with UK mortgage approvals likely to strengthen in 2018, said Hansen Lu, a property economist at Capital Economics. Even after factoring in rate hikes, interest rates will remain low by past standards, and the economic backdrop is set to improve, concluded Lu.