Wednesday, 2 April 2008

Mortgage approvals come crashing down


(click on the chart for a sharper image)

It does not matter whether you look at seasonally adjusted or non-seasonally adjusted data, mortgage approvals in February are down relative to last year. The seasonally adjusted data is down 37 percent, while the non seasonally adjusted number is down about 33 percent. Nevertheless, I thought it useful to plot both series just in case there was any confusion amount the calamitous decline in mortgage availability.

Looking forward, there is little prospect of a recovery in mortgage volumes. Over the last couple of weeks, many mortgage providers have announced the withdrawal of their flagship mortgage products. Interbank lending conditions are terrible, and many smaller banks are finding it difficult to borrow on the wholesale market. Interbank interest rate spreads are actually rising, and credit conditions could again be deteriorating.

Remember the golden rule of real estate - credit availability determines house prices. With credit tightening, house prices can only fall.

10 comments:

Salar said...
This comment has been removed by a blog administrator.
CWS said...

I like the blue line.

CWS said...

I like the blue line.

John said...
This comment has been removed by a blog administrator.
Alice Cook said...

Spammers will be zapped.

John said...

It's not all doom, gloom and depression. This is a good time to pick up a property bargain.

Prices have dropped nearly 5% in our area, making this a good time to buy. And if more people start buying the bargains it's bound to encourage the market in general and prices will probably start rising again.

QG said...

@john

"This is a good time to pick up a property bargain."

John, are you an estate agent by any chance? Generally, this is a *terrible* time to buy property.

Also, anybody who does buy, for whatever reason, and negotiates a (say) 10% discount, please bear in mind that many estate agents are deliberately adding 5%-10% onto asking prices in the expectation that "bargain" hunters will beat the price down a bit.

It is almost impossible to persuade sellers that they need to take a 20% cut hence we have a stalemate in the market. By next year, we may see some sellers capitulate but I doubt it will happen before then.

Anonymous said...

Having read John's comment, I can only ask if he's illiterate, innumerate, sectionable - or all three! The most optimistic credible predictions see a nominal drop of one third... the more pessimistic - two thirds. To drop only one third, we need to see intervention of a type and a scale we have not see yet from any of the central banks.

I flicked to post a reply because I wanted to say... Alice, you said "smaller banks are finding it difficult to lend on the wholesale market" - and I'm pretty sure you mean borrow. This is definitely what we're seeing in the recently released BoE figures lending (my own summary below). ;)

Mortgage lending by amount...
Bank : Down 22%
Building society : Down 45%
Specialist lenders : Down 63%

Number of mortgages : Down 35%
Mean mortgage principle : UP 2% @ £144K

I conclude from these figures that the UK market hasn't yet reflected anything like the price correction that is now inevitable.


aSteve

Rose said...

asteve

Borrow, lend, I had two thoughts in my head at the same time. I have just corrected it. Thanks.

I might have another look at the BoE numbers. It might be worth posting something along the lines of the numbers you quoted in your comments.

Alice

Anonymous said...

If you haven't seen it already, this is a great discussion of central banking and fractional reserve lending in a folksy lecture free of technical terms
http://www.bigeye.com/griffin.htm

Nick