The property market looks like having a hard time of things over the next year or two after the number of mortgage approvals fell by 14% in August. According to the British Bankers’ Association the number of approvals given the go-ahead for home purchases in the month was 61,051, down from 71,178 in August last year.
Experts now fear the onset of a recession, and suggest that a cut in interest rates might be necessary to prevent the property market grinding to a halt.
The number of mortgages fell for the third month in a row, as buyers seem to be leaving the market. For all mortgages, including re-mortgages, the number of approvals was 168,291 – 8.8% lower than the same month in 2006. The total value of loans was £19.1bn. For house purchases the figure was £9.38bn, down £1.1bn from July, and by £10bn compared to August last year.
Britannia Building Society’s chief executive Neville Richardson said bringing interest rates down by a quarter of a percent would probably not solve the crisis in the mortgage market. He said: “The mortgage market will be challenging. Just lowering the interest rates will not work. Getting some liquidity back into the market would help.†Mr Richardson thought that the chances of a property crash were low, thanks to good economic fundamentals.
Britannia uses the global wholesale money markets (the large use of which brought Northern Rock down) for only 25% of its borrowing, with 60% coming from its customers, so it should not suffer like Northern Rock did.
Nationwide’s figures for house prices show a fall in the annual rate of inflation from 9.6% in the previous month to 9% to mid-September. The downward trend is expected to continue.
In addition, the UK’s biggest housebuilder, Barratt Developments reported that sales of new houses were down by 10% following the Northern Rock crisis.
A drop in the Bank of England’s base rate is possible this week.
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Wed, Oct 17, 2007
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