Mortgage approvals plummet: are house prices set to crash?

The number of new mortgage approvals fell sharply in October. So does this mean house prices are set to crash? Karl Talbot takes a look.

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'For Sale' sign outside of a terraced house in the UK

Image source: Getty Images

New data from the Bank of England reveals the number of UK mortgage approvals slumped in October, suggesting house prices could dive as banks strengthen their lending criteria.

So what else does this data tell us about the wider housing market? Let’s explore.


What does the Bank of England data reveal?

According to the Bank of England, the number of mortgage approvals fell to 67,200 in October, compared to 71,900 in September.

The UK’s central bank reports that this is the lowest number of approvals since June 2020, when the country was experiencing the first wave of the pandemic. Interestingly, the figure of 67,200 approvals is close to the 12-month average reported in February 2020 (66,700 approvals). 

While the data reveals that mortgage approvals fell dramatically last month, the number of remortgages rose slightly (0.1%) to 41,600. Despite this increase, the number of those remortgaging is significantly less than the 49,100 who bagged a new mortgage deal in February last year.

In total, UK mortgage holders borrowed £1.6 billion in October. This is the lowest amount since July.

What can we learn from this data?

While this data is revealing, the housing market often cools in the run-up to Christmas. This is because home-seekers typically concentrate on other immediate priorities. Despite this, a low number of mortgage approvals does suggest that banks are becoming more picky with their lending. 

One of the reasons for this may be because banks are expecting the Bank of England to soon increase its base rate. While the BoE’s Monetary Policy Committee is unlikely to raise the base rate when it next meets on 16 December – given that only 2 of its 9 members voted in favour of a rise during its most recent meeting – speculation is mounting that a rate rise could finally be approved in the first quarter of 2022.

If this happens, new mortgage rates will almost certainly rise as banks compensate for increased borrowing costs. The fact that banks are seemingly cutting back on new mortgage approvals suggests lenders are already anticipating this action.


What’s the story with house prices in 2021?

It’s often said that house prices are notoriously difficult to predict. Yet many would be forgiven for questioning this narrative in recent years. That’s because house prices have only headed in one direction during the 2000s – upwards!

As we all know, even a global pandemic failed to apply the brakes to the UK’s house price inflation. According to the Office for National Statistics, the average UK house price now stands at a record £270,000 (as of September 2021). This indicates an 11.8% increase in 2021 alone, with the average home now costing £28,000 more than a year ago. 

There are numerous factors that have been blamed for the UK’s high house prices, including a lack of supply, restrictive planning laws and even government support schemes, which many feel have simply increased demand. 

Will house prices crash?

While homeowners benefit when house prices increase, it’s a far more depressing story for first-time buyers. That’s because non-homeowners are expected to cough up even bigger amounts every time prices rise.

While a future house price crash isn’t certain, the latest Bank of England data implies banks are beginning to tighten their lending criteria. This means that mortgages may become more difficult to obtain, limiting access to credit for new borrowers.

While this may seem like bad news on the surface, when lending is curtailed, this can actually lower house prices. As a result, if this trend continues, it is possible that house price inflation will slow in 2022.  

Are you looking for a mortgage? Whatever your expectations of the housing market, it’s worth knowing that low rates may not last forever. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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