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Mortgage approvals hit five-year high Mortgage approvals hit five-year high
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The number of mortgages approved for homebuyers reached a five-and-a-half year high in August, latest Bank of England figures show, in a further sign of increased activity in the housing market. Fresh evidence of a revival in the housing market emerged on Monday as mortgage approvals reached their highest level for five and a half years and forecasters predicted that the house price recovery would accelerate.
As the government prepares to bring forward the second part of its Help to Buy scheme to boost mortgage availability, the Bank said 62,226 house purchase loans had been approved during the month, above the average of 56,597 recorded over the previous six months and 30% higher than in August 2012. The figure was the highest since February 2008, when the housing market was starting to go into freefall, but remains well below the rate recorded in 2007 when approvals were consistently in excess of 110,000 a month. The Bank of England data showed that the number of home loans approved by lenders in August was the highest since February 2008, amid warnings that government policies threaten to inflate a property bubble.
Remortgaging also continued to increase in August, with 36,225 loans offered to switchers against a six-month average of 31,629. The figures were published as lenders grappled with the announcement by David Cameron that the second phase of the Help to Buy scheme will be launched three months earlier than scheduled.
In total, banks and building societies approved 111,320 home loans worth £15.6bn. Only the two state backed lenders – Royal Bank of Scotland and Lloyds Banking Group – are publicly stating that they are supporting the next development in the mortgage guarantee programme, which is designed to make it easier for buyers with a deposit of just 5% to find a home loan.
The property market has been gathering pace since the start of the year, boosted by improved consumer confidence and cheaper mortgages resulting from the government's Funding for Lending scheme. The Bank's figures show lending secured on properties increased by £1bn in August, and was up 0.6% year on year. A total of £14.9bn was paid out in new mortgages, while £13.9bn was repaid. The second phase, which will start formally next week, instead of January, has caused controversy over fears that the government is creating a new housing bubble after the first part of the scheme made it easier to buy new-build properties.
Total lending to consumers was up by £1.6bn compared to a six-month average of £1.3bn, as borrowing on credit cards and loans and overdrafts picked up. Credit card lending grew by £244m, while other unsecured lending grew by £333m. A series of house price surveys have pointed to rising house prices. The Centre for Economic and Business Research thinktank published new forecasts on Monday. Its index points to average house prices hitting a record of £225,000 by the end of 2013. In the five years to 2018, the thinktank expects house prices in London to rise 43% – but it insisted there was not a house bubble.
Howard Archer, chief UK economist at IHS Global Insight, said the figures provided further evidence that the market was "gaining appreciable momentum". However, Liberal Democrat peer Lord Oakeshott said Help to Buy was a "help to buy Conservative votes" while Richard Sexton, director of chartered surveyors e.surv, said house purchase lending had taken off again and that there had been a "staggeringly quick recovery in the space of just 12 months".
"An improving housing market is supportive to economic activity and growth prospects, while modest house price rises also have some benefits, especially when they are occurring in areas where house prices are still substantially below their peak 2007 levels and a significant number of people are facing negative equity," he said. "However, it is vitally important for economic stability and longer-term growth prospects that a new housing price bubble does not emerge." According to the Bank of England, 62,226 house purchase loans were approved during August although economists said this remained well below the rate recorded in 2007 when approvals were consistently in excess of 110,000 a month.
Richard Sexton, director of chartered surveyors e.surv, said house purchase lending had "taken off". "There have been 56,000 more house purchase loans so far this year than in the equivalent period last year, which represents a staggeringly quick recovery in the space of just 12 months. The data provided a contrasting picture for lending to business, which fell by £3.8bn in August, in the sharpest drop since last December.
"But there is still a long way to go. The next phase of the recovery needs to focus on easing the squeeze on living standards, which will make it easier for would-be buyers to build a deposit." Howard Archer, chief UK economist at IHS Global Insight, said: "An improving housing market is supportive to economic activity and growth prospects, while modest house price rises also have some benefits, especially when they are occurring in areas where house prices are still substantially below their peak 2007 levels and a significant number of people are facing negative equity".
"However, it is vitally important for economic stability and longer-term growth prospects that a new housing price bubble does not emerge."
Under the second phase of Help to Buy, the government is making available £12bn of guarantees to lenders – enough to support £130bn of mortgages where a deposit of as little as 5% is required. Lenders will be able to buy a guarantee on the "top slice" of the mortgage – the part between 80% and 95% - and pay a yet to be disclosed fee in return for the loans on properties worth no more than £600,000.
But even though the prime minister has said the second phase is being opened to customers earlier than planned, lenders will not be able to buy the guarantees from the government until next year.
"People will be able to start applying for the new mortgage guarantee from next week," the Treasury said.
The house price rises being forecast by Cebr are based on an index benchmarked to the third quarter of 2009 and Daniel Solomon, economist at the thinktank, said: "Government support and an improving economic climate will provide an invigorating shot in the arm for the housing market over the coming years".
Data from the Office for National Statistics has already put the average price of a UK house surpassing its peak of five years ago with the average price reaching £245,000.
Matthew Pointon, property economist at Capital Economics, said the impact of the second phase of Help to Buy may be smaller than some were fearing as no non-state-backed lender had signed up. The Bank of England also has the power to review the scheme every September, and curb any housing market boom.
An analysis of 10 house price surveys shows that estimates of average prices on a national level vary from £154,300 to £252,881. They put the average price of a London home between £300,800 and nearly £500,000.
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