The number of mortgage approvals in the UK fell for the fifth consecutive month to 59,029 mortgages for house purchases in November 2014, down from 59,511 in October – a 17 month low – according to the Bank of England.
The fall in approvals was steep last year, down 22.9 per cent overall from the 74-month high of 76,611 approvals in January 2014. Despite the lack of approvals, the data still beat analyst expectations of 58,500 in November.
This decline has been shown as further evidence of a slowing UK housing market. While all regions of the UK showed overall increases in prices in 2014, average house values are now rising at their slowest in more than a year, with month-on-month growth of 0.2 per cent in December and 0.3 per cent in November, according to data from Nationwide.
The stress tests included in the Mortgage Market Review (MMR) have been cited as a driving force behind the decline. The tests require lenders to assess the borrower’s ability to keep up with mortgage payments in the case of financial difficulties or a rise in interest rates. The MMR also implemented a price to earnings ratio cap of 4.5, meaning the total cost of the mortgage cannot exceed 4.5 times the borrower’s income.
Paul Williams, director of advisers Commodore Finance, said, “Approvals are likely to increase as lenders begin to relax and adjust to the new criteria. But the affordability rules are needed. It used to be that if you were living, breathing, and had a pulse, you got approved, which was a contributing factor to the crisis.
“Now lenders have gone to the other side of the spectrum and are strictly enforcing the affordability criteria. The results all hover around the new criteria and what lenders will and won’t accept in terms of income requirements.”
Stamp duty reforms announced in the Autumn Statement may also bolster the housing market, as the changes are expected to reduce stamp duty payments for 98 per cent of buyers. Higher consumer confidence, rising employment and more stable earnings growth are also expected to aid the housing market.
Equity release meanwhile reached its highest levels on record in 2014, totalling £1.4bn, according to figures from the Equity Release Council. This exceeds the previous high of £1.2bn in 2007 by 14 per cent and is a 29 per cent increase from 2013.
julia.farschou@ft.com
