A huge amount of information about mortgages is released every month – and you can safely ignore the great majority of it for the purposes of market analysis. The important part is the bit about mortgage approvals for house purchase – the latest update on which was issued today by the Bank of England.
Data on gross lending is almost irrelevant unless you also take in to account repayments. Month on month comparisons are not entirely helpful either because the property market is seasonal. Apparent changes in lending are often due to the seasonal nature of the market rather than any fundamental change in market conditions. And with mortgage rates so low, the number of owners re-mortgaging is unlikely to be high.
Approvals, however, specifically approvals for house purchase, give a good idea of both demand among buyers and the availability of mortgages. Historically, mortgage approvals have been a remarkably good indicator of property market conditions.
Now, the most interesting thing about the stats that have been coming out of the Bank of England recently is that monthly mortgage approvals this year have been consistently higher than they were at the same point last year (see graph).
Mortgage approvals in January were higher than they were in February and March – which looks like a fall. But if you compare approvals now with the same month the previous year, you’ll see that mortgage approvals have been higher for the last eight months in a row than they were for the same month a year earlier. In fact, it looks like that improvement started in August last year.
In April, purchase approvals were over 6,000 higher than in April 2011. That’s better than the increase recorded in both February and March. All in all, the latest results show that mortgage approvals remain above levels seen last year and that should signal a gradual improvement in market conditions.
But one small word of warning. We saw an improvement in mortgage approvals at the end of 2009. That resulted in a sharp recovery in prices in the first half of 2010. You can see stats on selling prices here
But that recovery petered out as the economy fell in to recession. Which only goes to show that you can’t buck wider economic trends for long.