High street mortgage approvals 'lowest since 1997'

Mortgage approvals fell drastically in March, according to figures released by the British Bankers' Association (BBA).

High street lending figures show 35,417 mortgages were approved for home purchases during the month.

This is down by 46.2 per cent on a year ago, and the lowest monthly figure since September 1997.

Remortgage approvals fell 7.9 per cent, to 60,503.

In total £15.6 billion worth of mortgages were approved – a fall of 14.7 per cent on a year ago.

The fall in approvals is squarely being put down to the credit crunch, as banks find raising funds on the money markets harder and more costly and pass on costs in the form of higher rates and higher deposits to borrowers.

"March's BBA data indicate mortgage activity is being pummelled by a toxic combination of stretched affordability and very tight lending conditions," said Howard Archer, chief UK economist at Global Insight.

"The low level of mortgage activity is not only a consequence of slowing demand for houses due to the elevated affordability pressures facing potential house buyers, but also increasingly due to very tight credit conditions leading to markedly fewer and more expensive mortgages being available.

"Furthermore, potential house buyers are now having to provide higher deposit levels, which is a particularly major problem for first-time buyers."

The size of the average mortgage is now £158,000 and the average remortgage is at £146,000.

“The consequences of low banking sector liquidity show up clearly in March data; reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals," said BBA statistics director David Dooks.

"Pressures on personal finances are also constraining demand, not only for mortgages, but also for personal loans and borrowing on cards."

The BBA data also shows the UK's credit card bill grew 6.5 per cent to £31.4 billion, as repayments fell a touch, loan lending was stable, and UK overdrafts grew by £200 million.

The figures come as little surprise to the Royal Institution of Chartered Surveyors (Rics).

"The tightening in the credit crunch is continuing to take its toll on the residential property market with BBA data showing mortgage approvals at their lowest level since September 2000," said Simon Rubinsohn, Rics chief economist.

"The Bank of England's latest 'swap' arrangement with the banking sector should help provide a little more liquidity for lenders but is not going to turnaround the current challenging environment overnight.

"A more encouraging development evident in today's data is the pick up in lending to the commercial real estate industry which having fallen sharply around the turn of the year posted a smart rebound in March."

Chris O'Toole