Analysts scent first sign of homes slump
Oct 26 2007 by Graeme King, The Journal
MORTGAGE lending last month plunged to its lowest September level in seven years as the global credit crunch saw banks clamp down on lending standards.
New research from the British Bankers’ Association (BBA) said the number of house purchase approvals dropped 27% in September to 52,685, from 72,155 last year.
Underlying net mortgage lending also eased to £5.8bn in September from £6.1bn in August in a sign that the housing market is being squeezed by the tightening in credit markets.
BBA director of statistics David Dooks said: "Lower amounts of new mortgage lending and fewer loans approved for house purchase signal a weaker outlook for the mortgage market, particularly if loan supply reduces in the aftermath of the recent financial markets difficulties and borrowing costs remain at current levels."
Wholesale money markets have been in crisis since August, sparked by soaring default rates among high-risk mortgage borrowers in America.
The credit squeeze has hit lender funding lines, with Northern Rock the most high profile victim so far, seeing the first run on a bank in nearly 150 years last month after revealing it had called on the Bank of England as lender of last resort. Lenders have started to tighten their criteria for borrowers, which combined with the five interest rate rises since last August is putting the brakes on the property market, according to Global Insight economist Howard Archer.
He said: "Slowing housing demand is expected to increasingly feed through to dampen house prices over the coming months. Indeed there is undeniably a very real risk that the housing market could see a sharp correction."
The International Monetary Fund recently warned that the UK’s housing market was in danger of mirroring America’s property slump, with the recent boom leaving house prices significantly over-valued.
Meanwhile, the latest report from Ernst & Young’s influential Item Club economists warned that house prices would stall next year, although it said the market was unlikely to crash.
Mr Archer said the lack of housing supply in the UK would help limit falls, with an expected cut in interest rates next year also set to provide a boost.
But he added: "The risk of a housing slump will increase if the credit crunch is prolonged."
Today’s BBA figures provided further evidence that house prices are cooling, with the average mortgage loan standing at £152,300 in September, down 1% on August.
The average mortgage value has been steadily dropping since June and is now back below the level seen last April.
