THE number of new home loans has suffered its largest fall for a decade in the strongest sign yet that Britain’s property boom is coming to an end.
Mortgages approved by the country’s leading banks dropped a seasonally adjusted 16 per cent between June and July, according to figures that could prove to be an early warning of falls in the main house price indices.
Price surveys from both Nationwide and Halifax have yet to pick up on anecdotal reports of falling home values, but economists now believe that the property market is on the turn.
Yesterday’s mortgage approval figures were far weaker than the City expected and cast doubt on whether the Bank of England would press ahead with further interest rate rises this year.
Alan Castle, of Lehman Brothers, said: “The era of rapidly rising house prices may be drawing to a close.
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“If this drop (in mortgage approvals) is mirrored in the official Bank of England data next week then it would be a strong signal that house price inflation is set to fall rapidly.”
Figures from the British Bankers Association showed that the number of new home loans approved during July was 20 per cent down on the same month last year.
Just 210,500 mortgages were approved in the month, worth £16.4 billion. This compared with 261,500 mortgage approvals — totalling £18.2 billion — seen in July 2003.
Calculations by Malcolm Barr at JP Morgan show that, after adjusting for seasonal variations, the numbers of mortgage approvals dropped 16.6 per cent between June and July. This was the largest monthly drop in at least ten years, Mr Barr said.
“If you you were not worried about the potential for an abrupt correction in UK house prices before today, you should be now.”
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The detail of the figures showed a particularly marked fall in mortgages for new home purchases.
Mortgage approvals are understood to be down for all leading lenders, and across all type of product.
Mr Castle, of Lehman Brothers, said: “There’s no real sign that these are just a statistical blip.”
If the disappointing approvals data are followed by weak house price surveys from the Nationwide and Halifax in the coming days, then analysts believe that the Bank of England could think twice about putting up interest rates again.
Mr Barr said: “If the indications on housing activity remain as worrying as this BBA release, then another move higher in rates in November comes into question”.
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At the moment, the market is pricing in one more rise in borrowing costs from the Bank of England this year, which would take the base rate to 5 per cent.
Bets soar on London and South East crash
CITY spread-betting firms have reported a surge in gambling on a house-price crash in London and the South East (Joe Morgan writes).
Bearish punters are betting thousands that the price of an average London house will fall by more than 8 per cent in the next year. Spread betting is a derivatives-based form of gambling that enables punters to “buy” or “sell” the movement of a market.
Giles Wilkes, the head of financial trading for IG Index, a leading spread-betting firm, said: “People who do not have a financial trading background and would never normally speculate are having a punt. The housing market has become a dinner-party topic of conversation in London and people are placing bets because it is something that they feel they know a lot about.”
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The firm is predicting that the price of the average London house will fall by 6.5 per cent to £228,800 by September 2005.