UK Mortgage Approvals Slump and House Prices Register First Fall for Two Years

By: Nadeem_Walayat

The Bank of England revealed today that the credit crunch resulted in a sharp drop in mortgage approvals during September 2007, falling to a 2 year low of 102,000 loans down from 108,000 loans in August 2007. The trend is expected to continue as surging repossessions result in more bad debt provisions and hence tighter borrowing requirements going forward. The credit crunch has seen the LIBOR rate (the rate at which Banks lend to one another) surge from 5.4% a year ago to more than 6.5% during September, with little reduction since.

The Council of Mortgage also today announced that they expected 30,000 repossessions this year to rise to 45,000 next year. However the CML has consistently shown itself inept at forecasting repossessions, which in January 2007 was forecasting repossessions of 19,000 this year and just 20,000 during 2008. The Market Oracle forecast is for repressions of 40,000 this year and as high as 80,000 for 2008 which would be more than at the height of the early 1990's housing bust. The CML is forecasting marginal house price increase of 1% next year, against a Market Oracle forecast of a fall.

The impact of the tightening of borrowing requirements in the face of affordability concerns is starting be appear in the housing indices as evident in Hometrack's latest survey showing a 0.1% drop in house prices during October, bringing the annualised rate down to 4.4%. The biggest falls were in London which fell by as much as 0.5%. The critical point will be reached when annualised house price inflation goes negative, which would spark an marked change in sentiment. This event is anticipated to occur in February 2008.

The down-trend in house prices is inline with the Market Oracle forecast as of 22nd August 2007, including the forecast that London would lead the way with larger declines. A crashette, is also expected to coincide with the Capital gains Tax changes due to come in force in April 08, which will trigger a surge in Buy to Let selling.

By Nadeem Walayat
Copyright (c) 2005-07 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

© 2005-2012 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Comments