Mortgage approvals remained close to record lows last month, figures from high street banks showed on Tuesday, while weaker deposit growth and lower credit card spending pointed to mounting financial strains on households.
The British Bankers’ Association said mortgage approvals by its members for house purchase totalled 22,448 in July, similar to June’s all-time low and 65 per cent below the level a year earlier.
The monthly increase in net lending was steady at £4.3bn, while the average value of loans for house purchase was £138,000, 11.9 per cent below last year’s level, reflecting falling prices and more conservative lending.
In spite of the stabilising of approvals, David Dooks, the BBA’s statistics director, warned activity remained at too low a level to raise hopes of any recovery in the housing market.
Further evidence of the intense pressure on the housing sector resulting from the slump in transactions came on Tuesday from housebuilder Bovis Homes Group, which reported a sharp drop in profits, lower sales prices and tighter margins. It has cut about 40 per cent of its staff since the start of the year.
“The negative sentiment towards the housing market suggests that even those people who can obtain and afford a mortgage may choose to steer clear of the housing market until house prices appear to have reached a floor,” said Seema Shah, property analyst at Capital Economics.
Even areas of the mortgage market that had proved relatively resilient are now manifestly suffering. The BBA said approvals for remortgaging – boosted earlier in the year by a large number of people renewing fixed-rate deals – were 21.2 per cent lower than a year earlier.
Separately, the Council of Mortgage Lenders released data showing that lending to buy-to-let investors had also tailed off, albeit more slowly than in the wider market, with advances for house purchase a third lower in the second quarter than in 2007.
Lenders have also tightened their criteria, on average requiring higher rental cover and setting a lower ceiling on the total that any one buy-to-let investor can borrow for a portfolio of properties. And they appear more likely to resort to repossession when a buy-to-let investor falls behind with repayments than with owner-occupiers who get into difficulty.
The proportion of buy-to-let mortgages taken into possession in the first half of the year, up to 0.16 per cent, was the same as in the wider market. But a smaller proportion of buy-to-let borrowers had fallen into arrears of more than three months – 1.1 per cent, compared with 1.33 per cent in the wider market.
The BBA figures also suggest rising household bills are putting more people under financial pressure and making it harder for them to set money aside. Personal deposits rose by a slim £800m in July, compared with an average of £2.8bn over the past six months.
But people are not turning to credit card borrowing to enable them to keep spending. The number of purchases by credit card fell to 102.3m from a six-month average of 104.2m. “It seems that consumers are acting prudently,” Mr Dooks said.
New credit card spending of £7.1bn was the lowest since June 2007. Repayments of £7.4bn were also the lowest in more than a year.