Mortgage approvals fall to record lows as political uncertainty dominates market

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Mortgage approvals by the big lenders fell to a seven-month low last month as uncertainty about the general election and Brexit put off buyers.

The number of approvals for house purchases, which is regarded as an early indicator of the health of the property market, fell by 1,000 to 41,219 from 42,216 in September, figures from UK Finance, the industry association, showed.

It was the third month running that approvals dropped and comes amid signs that the economy is struggling. Monthly approvals are now almost 2,000 below the recent July high. Gross mortgage lending, at £25.5 billion, was down 0.9 per cent compared with October last year.

Early indications that the housing market may be slowing would normally be a cause for concern. Household confidence is affected by property and, as consumers account for two thirds of national output, any deterioration in confidence can have knock-on effects.

Nationwide building society described annual house price growth of 0.4 per cent in October as “subdued” and a survey from the Royal Institution of Chartered Surveyors found that new buyer enquiries fell heavily last month. Separate consumer confidence figures weakened in October to the equal lowest level this year.

The latest slowdown appears to be related to immediate uncertainties, however. Howard Archer, chief economic adviser to the EY Item Club, said: “With Brexit uncertainties extended and the UK facing a general election, it looks a racing certainty that the housing market will continue to find life challenging in the near term at least, keeping prices soft.”

A slowdown in wage growth may have also dented confidence but there is considerable support for the property market. Mortgage rates have fallen further to new lows and the Bank of England’s monetary policy committee is toying with the idea of a cut in interest rates.

Samuel Tombs, UK economist at Pantheon Macroeconomics, said: “The average quoted rate for a five-year, 75 per cent loan-to-value loan fell to 1.74 per cent in October, from 1.8 per cent in September and now is 30 basis points below its level at the start of the year.”

Mr Tombs expects mortgage lending to pick up in the first quarter of next year, assuming the Conservatives’ Brexit bill clears parliament. Boris Johnson has a commanding lead in the polls.

There was a small uptick in unsecured consumer credit growth last month, however. UK Finance, which represents banks, building societies and asset managers, said the annual growth rate increased to 4.5 per cent, its highest in 20 months. It was still well below the peak of 7.1 per cent in late 2016.

The increase was primarily due to personal loans and overdrafts rising by 5.9 per cent while credit card borrowing growth was limited to 3.1 per cent. The pick-up came despite a 0.2 per cent fall in retail sales in October and a drop in the number of new car sales.

Bank of England household credit figures, which are due on Friday and include a wider range of lenders, have been showing a moderation in unsecured consumer credit growth since stricter rules around affordability were introduced.

“A number of surveys indicate that consumers have recently become more concerned by the combination of a struggling domestic economy, heightened domestic political and Brexit uncertainties and a deteriorating and more fractious global economic environment,” Mr Archer said.