In a sign that the mortgage market is getting ever tougher for those looking for a mortgage, many UK lenders have confirmed they expect the rate of approvals will drop in the coming three months the third quarter of 2014.
The Bank of England has recently released its Credit Conditions Survey which covers the second quarter in 2014. The lenders response appears to be related to the results of this survey and the various measures that have been put into place to prevent a housing boom from occurring again.
How far could approvals fall in the third quarter?
It remains to be seen, but many factors are coming into play here. Perhaps most notably we have the Mortgage Market Review (MMR), which came into effect as April came to an end. More recently the Bank of England has announced it will cap the percentage of new mortgages that are calculated at over 4.5 times the borrowers income. This cap has been set at 15% of the total number of mortgages issued and it will come into force in October this year.
The Bank of Englands Governor Mark Carney also announced additional affordability checks would be brought in to further reduce the chances of people running into financial troubles if interest rates went up.
Demand is still rising
Perhaps one of the most notable facts to arise from the Credit Conditions Survey is the fact that secured lending for house purchases is still rising. This is expected to continue through the third quarter. As such we could well have a situation where demand continues to rise and yet mortgage approvals continue to fall. This will leave many frustrated potential homeowners unable to buy their own properties. It is also likely to result in some people who already own their own homes being unable to get a mortgage to move elsewhere.
Is risky lending over?
It looks as though this is the case, certainly. The measures here are being put in place to ensure people do not borrow more than they can afford. If interest rates rise we should therefore see fewer defaults on mortgages than we may have seen previously. Since this was in large part the cause of the economic problems of a few years ago it is clear the measures are definitely needed.
One major concern however is house prices as these are still rising. People are able to borrow less than they could before and wages are still stagnant. With house prices on the up, being able to afford a home is becoming more challenging all the time.
It remains to be seen what will happen to house prices over the coming months and years. However one would assume fewer sales would be achieved if prices continued to rise. This should in turn push prices back down to an affordable level again, although of course there are lots of factors in play that can decide what actually happens in this respect.