Mortgage approvals for properties in the UK fell more than expected in December to their lowest since March 2009 when the country was in the middle of a recession and could drag down the real estate market, according to experts.
The Bank of England said mortgage approvals totalled 42,563 in December, down from 47,287 in November and are now running at less than half their long run average, suggesting that further house price falls may be to come.
In December, net lending shrunk by £298 million as homeowners repaid more than they borrowed, only the third time this has happened since records began in 1993. The Council of Mortgage Lenders has predicted that net lending will drop even further to £6 billion this year.
‘Even allowing for the fact that the severe weather likely hit mortgage activity in December, the Bank data point to a housing market stuck in the doldrums. We maintain that house prices will fall by around 10% from their peak 2010 levels by the end of 2011,’ said Howard Archer, chief UK economist at IHS Global Insight.
Nida Ali, economist at Ernst & Young also believes the low levels of lending will impact adversely on the property market. ‘The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011,’ said Ali.
Confidence in the housing market is being hurt by a still fragile economic recovery, reflected in an unexpected decline in gross domestic product in the fourth quarter of last year, and by the prospect of heavy public spending cuts as the government seeks to slash a record budget deficit.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors said the poor figures are a reminder of the challenges currently facing the housing market. ‘It is easy to blame poor weather, which clearly had some impact on the market. But on the other hand, the generally disappointing activity data through the latter part of 2010 is broadly consistent with the RICS Housing Market Survey’s negative picture on the number of buyer enquiries,’ he said.
‘Looking forward, some rebound in the January numbers is likely if only because of the better weather conditions. However, with lending still constrained, and mortgage rates edging up under pressure from developments in financial markets, it is hard to see mortgage approvals picking up markedly. Indeed, for the whole of 2011 we see activity in the housing market at a broadly similar level to that recorded last year,’ he added.
Courtesy : propertywire
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