Mortgage Approvals begin to fall again
After a run of positives in the mortgage and property markets, the market seems to have hit another slump in recent times as the latest market data shows that mortgage approvals dropped dramatically in February.
Where mortgage approvals reached a high at the end of last year and continued through January, the Bank of England have released figures which show that the approvals for home purchases went down to 48,986 from a six month average of 53,777. Remortgaging approvals also declined, from 32,735 to 27,940, showing a definite trend of the property market taking a hit.
Experts posit that there are more than one reason for this decline and they do not necessarily hint at the property and mortgage markets being in trouble.
The first is that the Stamp Duty holiday was due to end in March, meaning a number of new applicants were put off by February as they would not have been able to complete on their purchase before the holiday ended. The Stamp Duty holiday also would have created an unnatural boom in the amount of mortgage applications which were passed through in the preceding months, as the cut of the tax for first time buyers would have made many more people keen to get their mortgage at that time. So then after the holiday ended a decline was perfectly natural. Stamp Duty is calculated as 1% of the property’s total value, adding a large amount onto how much cash needs to be paid upfront. This will naturally take it away from the borrower’s deposit and may make the process more difficult for first time buyers, in particular those looking for contractor mortgages.
The second thing that has happened since the beginning of 2012 is the tightening in lending criteria from a number of popular high street banks and lenders. This has caused many people who would have been eligible a few months ago for a mortgage to no longer have their mortgage application approved. Put this with the fact that interest only mortgages are all but obsolete at this time and there is bound to be a drop in how many mortgages actually go through. With less products on the market there will naturally be less being sold to customers.
However, this does not necessarily mean that the mortgage market is in a slump, as these factors together will obviously cause a more dramatic effect than if they had happened separately, and it is not unreasonable to assume that within the next few months the number of mortgage approvals will even out and then start to grow again as people get used to the situation.
Article by: Rebecca Sidwell, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager.
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