High street bank mortgage approvals fall to near three-year low

UK mortgage approval numbers dropped off more than expected last month with approvals by the main high street banks falling to their lowest level since January 2015, data from the industry showed on Thursday.

There were 36,100 mortgages approved for house purchases in December, down sharply from November's figure, which was revised to 39,000 and well short of the consensus forecast of 39,800.

Total gross mortgage in the final quarter was 3% cent lower than in the comparable quarter of 2016, though gross mortgage lending in December was estimated to have been grown 1.2% year on year to £20.2bn, according to UK Finance, the industry trade body that produces the figures formerly published by the BBA.

Consumer spending was reflected in the use of credit cards, rather than loans or overdrafts, though credit card spending decreased slightly in the month but at £10.08bn remained close to the year's monthly average. Outstanding levels of card borrowing grew 5.3% over the year.

Business borrowing from high street banks was modest through 2017, expanding by only 1.2%, with manufacturers' borrowing expanding modestly, but construction and property-related sectors contracting.

Eric Leenders, personal finance chief at UK Finance, said: “December is traditionally a quieter month for mortgages, although the underlying trend of increased numbers of first time buyers, supported by government initiatives such as Help to Buy, continues."

Economist Samuel Tombs at Pantheon Macroeconomics said: "The deterioration in consumers’ confidence, driven by the squeeze on real incomes and the November interest rate hike, has taken a heavy toll on the mortgage market."

With approvals by the main high street banks down to their lowest in almost in almost three years, he said Chancellor Philip Hammond's reforms to stamp duty for first-time buyers in the November Budget did not seem to have reinvigorated the market, with other surveys indicating new buyer enquiries fell sharply in December and so may see approvals continue to trend down in early 2018.

"Looking ahead, the easing of the squeeze on real incomes, as inflation falls back and wage growth revives modestly, should help households’ confidence to recover," Tombs said. "But mortgage rates likely will rise further from the end of February—when new lending no longer will generate allowance for banks from the Term Funding Scheme—and again towards the end of the year, when the MPC likely will hike rates again. As such, we expect the housing market to remain very weak this year, with house prices merely holding steady."

Mortgage broker Mark Harris of SPF Private Clients noted that the number of first-time buyers continued to be strong, which is excellent news for the overall health of the market.

"Government initiatives, coupled with lenders’ efforts to lend at higher loan-to-values at competitive rates, are proving attractive to those trying to get on the ladder for the first time," he said. "There is much speculation as to when interest rates will rise again but lenders remain keen to lend and there is more money available than people ready to borrow it, which will keep mortgage rates low at least for now."