Mortgage approvals for house purchase fell for a second month running in September after hitting a six-month high in July.
According to new figures from the Bank of England, the number of mortgage approvals for house purchase fell from 67,232 in August to 66,232 in September.
The Bank’s Money and Credit report showed that the number of mortgage approvals overall rose slightly to 127,565.
Remortgaging activity hit a year-high, going up from 46,270 approvals in August to 47,598 in September. This took the value for remortgaging up to £8.4 billion.
Howard Archer, chief economic advisor to the EY ITEM Club, said that September’s second successive dip in mortgage approvals suggested it was unlikely there would be an upturn in housing market activity in the near future.
He said: “Housing market activity is being pressurised by weakened consumer purchasing power and substantial consumer wariness over engaging in major transactions.
“Additionally, housing market activity is likely to be hampered by fragile consumer confidence and a limited willingness to engage in major transactions.”
With inflation currently at a five-year high of 3%, the Bank looks set to increase interest rates for the first time in more than 10 years.
“It is also very possible that a likely-looking BoE interest rate hike on Thursday will weigh down on housing market activity. While any increase in interest rates would be small and mortgage rates would still be at historically very low levels, the fact that it would be the first rise in interest rates since 2007 could have a significant effect on housing market psychology,” said Archer.
Archer said that despite the Bank stressing that interest rates will rise only gradually, even small increases could cause problems for many consumers given high borrowing levels.
Consumer debt
Credit card lending rose by 9.2% in the year to September, up from 8.9% in August. This took the overall amount held by borrowers on plastic to £69.4 billion.
Unsecured consumer lending dropped slightly to 9.9% on an annual basis in September, down from 10% in August.
Overall, consumers borrowed £1.6 billion worth of credit in September, down from August’s figure of £1.8 billion.
The figures come after the Bank raised the capital buffer on UK lenders amid concerns about the rapid growth of consumer borrowing.
The Bank of England warned last month that the UK banking system could incur consumer credit losses of around £30 billion if there is another economic downturn – £10 million more than previous estimates.
To guard against any future credit losses the Bank is requiring lenders to hold an extra £10 billion in capital.
Archer said “While unsecured consumer credit growth has come modestly off its peak levels, it remains too high for comfort and the BoE will likely be disappointed it has been pretty sticky in recent months.”
“The BoE sees unsecured consumer borrowing as a significant risk to the economy and has warned that banks risk become complacent in their lending behaviour. The latest credit conditions survey did at least indicate that banks are becoming more cautious in their behaviour by making less unsecured credit available to consumers and tightening lending standards.”
The growing reliance by consumers on credit has led to the highest debt levels in recent history.
Over six million Brits believe they will never be debt-free, with the average person owing over £8,000 – not including mortgage repayments.
According to research from price comparison site comparethemarket, 22% of Brits are struggling to make ends meet, while 62% admit to being worried about their levels of personal debt.
Gillian Guy, chief executive of Citizens Advice, said: “The rise and rise of consumer debt is a cause for alarm at a time when large numbers of people are already in financial difficulty.
“The Financial Conduct Authority must step in to curb the worrying rise in debt – by banning credit card firms from pushing more credit onto people who haven’t asked for it, and compelling them to offer support sooner when it’s clear people can’t pay.
“The FCA’s own research shows that eight million people are already struggling with debt – leaving them vulnerable to falling into a debt spiral should interest rates rise or a life change sets them back on their repayments.
“It’s essential that the regulator and credit card companies act together to prevent people getting stuck with ever-growing debts that they can’t afford to repay.”
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