Housing crisis subsiding as mortgage approvals rise?

As mortgage approvals jump 4%, one expert predicts the beginning of the end for the housing market slump.

Last Updated: 31 Aug 2010

Some positive news for current and would-be homeowners this morning: the number of mortgages approved in February was 4% up on the previous month, according to the Council of Mortgage Lenders, suggesting that confidence is slowly starting to return to the market. What’s more, consultancy Lombard Street Research’s latest index suggests houses are now more affordable than their long-term average for the first time in five years – and with bargain-value properties now on the market, it reckons there’s a good chance that the market will bottom out by Christmas. Hope springs eternal...

LSR’s conclusions are based on its affordability index (put together in conjunction with the Telegraph), which compares house prices against the cost of mortgage repayments, taking into account the level of supply. 100 points represents average affordability since the early 1960s, and LSR says that in the first quarter of this year, the index jumped from 96.3 points to 109 points (the best figure since 2003) as interest rates tumbled. This suggests, it says, that the peak-to-trough fall in prices won’t be anything like as bad or as prolonged as some economists are predicting – music to the ears of homeowners worried about prices dropping another 20% or 30%.

The 4% rise in mortgage approvals in February might seem on first glance to bear this out – but sadly, it may not be so simple. There’s still a very low level of lending compared to recent years, and the total dished out (about £3.1bn) was pretty much the same as the previous month. One thing that LSR’s index doesn’t take into account is the availability of credit, and this is still scuppering many would-be purchasers. The average first-time buyer needed a record deposit of 25% to get their hands on a loan – and with the average house price now about £157,000 (at least according to the Halifax), that amounts to nearly £40,000 in cash. Sums like these are ‘out of reach for all but the most affluent buyers’, as the CML points out.

With lenders still reluctant to stump up funds for new mortgages, it’s not surprising that the CML takes a slightly less optimistic view on the market’s prospects – although it did suggest last month’s slight uptick hinted at ‘some positive signs for later in the year’, which we suppose is better than nothing...

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