Mortgage approval decline triggers concerns for economy

Permalink: Mortgage approval decline triggers concerns for economy
by Kay Murchie

In October, mortgage approvals fell to their lowest level since records began 10 years ago which has sparked concerns for the economy. The British Bankers’ Association (BBA) said its members lent just 44,105 mortgages for house purchase last month which is a record low.

It was down 19% from September and 37% from October 2006 when over 70,000 home loans were approved.

Furthermore, figures from the Government established that the economy grew slower than anticipated in the third quarter of the year after the credit squeeze and increasing interest rates had an affect. GDP grew 0.7% rather than the 0.8% estimated by officials just a few weeks ago.

The third quarter marked the slowest economic expansion for 12 months and serves to emphasise that the economy passed its cyclical peak even before the full impact of the credit crunch said RBS economist Geoffrey Dicks.

However, in spite of a downward revision to the annual rate from 3.3% to 3.2%, the economy is on target to meet Chancellor Alistair Darling’s growth target of 3% this year but economists have warned that his next year’s forecast of growth between 2% and 2.5% is optimistic.

A severe slowdown in the property market is also anticipated over the next few months following the mortgage slowdown according to George Buckley of Deutsche Bank. Mr Buckley also suggests that Bank of England lending figures due this week will show the amount of mortgages approved in October fell below 100,000 for the first time in 2 years.

David Dooks of the BBA concluded that October’s figures provided evidence of a significantly slowing mortgage market and of consumers restricting their personal borrowing.