November’s 2.5% drop in mortgage approvals fuels future lending fears

A fall in the number of mortgage approvals in November has triggered concerns over lending levels for the coming months.

Figures published by the Bank of England last week show that an 8.4% decline in the number of remortgage approvals in November, down to 31,154 from 34,004 in October, caused a slight drop in the number of overall approvals.

Total approvals fell by 2.5%, from 107,555 in October to 104,853 in November, while those for house purchases remained static at 52,854.

Although gross mortgage lending rose by 4.1% to £12.6bn in November, Capital Economics says the drop in approvals is worrying and that approval levels are likely to remain low by historical standards for the foreseeable future.

Samuel Tombs, UK economist at Capital Economics, says the data marks an end to the upward trend in mortgage approvals seen for the most part of 2011.

He adds: “At least house purchase approvals did not fall as expected in November, but we fear they might start to decline as banks restrict availability further and raise the price of credit as wholesale funding markets deteriorate.”

David Braithwaite, director of Citrus Financial Management, believes the figures paint a picture of flat growth for the mortgage market in 2012.

He says: “The material drop in the number of remortgages may reflect how, as the eurozone crisis escalated and the economy worsened in late autumn, people became even more confident that interest rates will go nowhere for some time.”

But mutuals continued to buck the trend in November with the Building Societies Association reporting a 13% year-on-year increase in mortgage approvals.

November saw £2.1bn worth of mortgages approved by mutuals compared to £1.9bn in November 2010, while building societies’ gross mortgage lending totalled £2.5bn in November, a year-on-year rise of 24%.