It was widely reported in May that the level of new property sales has waned in recent months, and the reduction in activity appears to have continued unabated. The Bank of England provided figures yesterday that evidence UK banks agreed 61,707 mortgages for purchasing in May, with the consistent average across the previous half year hitting 70,000 approvals.
While the BOE’s figures did also show that the level of lending had increased above the levels expected for the period, by as much as £1.99bn, the continued slip on new mortgages being approved is potential cause for concern for the market. Questions have been asked of the BOE’s decision making, in lieu of recent policy changes made by the Governor of the body, Mark Carney, to introduce lending limit caps in a market where it already appears that a natural reduction in activity is helping to cool an overheating housing market.
An economist for Capital Economics, Paul Hollingsworth, commented: ‘Given that the Financial Policy Committee (FPC) refrained from introducing any measures to sap the housing market recovery of its current momentum last week, the latest money and credit figures may come as a welcome sign that the housing recovery is losing some steam of its own accord.’
The belief amongst commentators in the mortgage sector is that the disruption to market activity is partly due to a general malaise setting in especially in the contractor focused areas of the South-East and London. Escalating prices are preventing would-be buyers from making successful purchases, and a lack of housing stock continues to attribute to the burgeoning stagnation of activity. More widely pinpointed as the key culprit are the revisions made by the Financial Conduct Authority in April, when the Mortgage Market Review was introduced.
The changes had been mooted for almost a year, but before the Easter period the FCA implemented various guidelines for mortgage lenders to adhere to when assessing the validity of any new mortgage application. For many, the increased level of assessment required per application has impacted the level of loans agreed, partly because of the requirement to retrain staff in how to execute the new processes required, and also due to the fact that certain changes will now mean that a loan that would have been agreed two months ago may now fall outside of criteria.
Taking the point that the implementation process should only have a temporary effect on the market, Robert Wood, an economist for Berenberg private bank, said he felt the MMR revisions would not hold the market back in the long term. He said: ‘House prices are likely to continue rising rapidly. After the temporary disruption from tighter regulations has passed, we expect approvals to return to their upward trend and we look for house prices to gain 10 per cent in 2014 and 2015.’
Mark McBurney, a mortgage consultant for Contractor Mortgages Made Easy, said that approvals had been disrupted by the MMR process, but that contractors should not be put off by the news of a reduction in activity. He said: ‘Mortgage lenders and advisers have been aware of the impending changes to mortgage processing for some time, so the news that lending levels have dipped recently is not unusual. Very little has changed around the criteria required to approve a loan since April, and the main issue appears to be an increase in timescales for a loan to be approved.
McBurney continued to say: ‘Patience is of the utmost importance now for any buyer looking for mortgage finance. While estate agents still continue to heap pressure to progress an application on the shoulders of the buyer, the reality is that post-MMR, a mortgage can take at least 4-6 weeks in most cases to reach approval.’
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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