UK Mortgage approvals fall by a whopping 64%

Approvals for house purchases in the UK are 64% lower than a year ago.

The British Bankers’ Association (BBA) have reported that major banks in the UK approved 21,086 mortgages, down from 58,564 in August last year.

Also, approvals for remortgaging a property were down 28% at 47,765.

Experts advise that falling house prices, stricter lending criteria and the uncertainty on stamp duty are the main reasons for the huge drop.

The BBA’s members account for roughly two thirds of the UK mortgage lending.

New mortgages lowest since 1993

The BBA (British Bankers Association) has announced that only 58,000 mortgages were approved in April – this is 8% fewer than in March this year and down a whopping 39.4% on April 2007.

There has however been a small rise in people who are remortgaging their properties. This is due to the number of borrowers coming to the end of their current fixed rate deals and looking for a new and better deal.

Unfortunately most borrowers do not look around for a better deal, tending to stick with the same lender even when their repayments are going up.

At this time of the credit crunch when the mortgage market is changing all the time it is wise for borrows to look around for the best deals.

Lenders to discuss mortgage woes

Chancellor Alistair Darling and Housing Minister Caroline Flint are to meet mortgage lenders later to urge them to do more to help struggling borrowers.

Mr Darling will ask the industry to find ways to prevent those in trouble from having their homes repossessed.

It follows his backing of a £50bn Bank of England plan to allow banks to swap mortgage debts for government bonds to help them during the credit crunch.

The global squeeze has made mortgages harder to find and more expensive.

The rate at which banks lend to each other has been rising, which has seen banks toughening up their lending terms even though official UK interest rates are falling.

There is particular concern about homeowners coming to the end of cheap fixed-rate deals.

Many of them will face much higher monthly bills at a time when food and fuel costs are already stretching household incomes.

Figures from the Council of Mortgage Lenders last month showed the number of people whose homes were repossessed last year in the UK rose by 21% - the highest for eight years.

Swap scheme

But after the announcement of the multi-billion-pound scheme to help banks with their liquidity problems on Monday, it is thought the chancellor may now feel it is time for lenders to pass that assistance on to customers.

In a statement to MPs, Mr Darling said the Bank’s intervention was necessary because money markets were not “functioning properly” and were beset by a “lack of confidence” despite billions of pounds in liquidity being pumped into the system.

The measures, he said, would help alleviate the “increasing cost and declining availability of lending by banks and building societies”.

Under the plan, banks will be allowed to swap mortgage debts for government securities.

The swap scheme, starting on Monday, will be for a period of one year and may be renewed for a total of three years.

It will only apply to mortgage debts on banks’ books at the end of 2007 and the swaps cannot be used to finance new lending.

‘Improved liquidity’

Michael Coogan, the director general of the Council of Mortgage Lenders, which will be attending the meeting with the chancellor on Tuesday, welcomed the Bank of England’s move and said it would help with two things.

“Firstly, improve liquidity in the market, but that may mean more than £50bn over time.

“Secondly, and importantly, restoring confidence in financial markets, which I hope will bring down the cost of the London Interbank Rate, which affects most consumers,” he told BBC Radio 4’s The World Tonight.

British banks have become increasingly unwilling to make loans, even to each other, as a result of the credit crisis, which was triggered by massive losses for banks involved in the US sub-prime mortgage market.

And many investors, concerned at what happened to sub-prime mortgages in the US, no longer want UK mortgage-based assets.

The disappearance of this market has deprived banks of tens of billions of pounds of finance for mortgage lending.