‘Mortgage approvals level off’ was the conclusion drawn by much of the media last week as the Bank of England released its latest data on approvals. In fact, the outlook is a good deal better than the headlines suggest.
True, the Bank reported 53,700 mortgage approvals to buy (i.e. not including re-mortgages) in April, not much of a change on the 53,500 level recorded in March (see graph). You can access the complete data set here. But changes from one month to another are not a reliable indicator of market conditions. They don’t take in to account the seasonal nature of the property market and they can be easily skewed by short term variables like the weather.
A far better measure is the change between now and the same month the previous year. In that context, lending in April was up by 3.6% compared to the same time last year. That’s not a huge leap and it’s around half the 7% growth we saw between March last year and this. Nevertheless, the improvement is better than the headlines suggest. It is also the third month in a row to see approvals higher than they were the same time last year. Total approvals so far this year are almost 5,000 ahead of the first four months of last year.
If the rate of growth is slowing, however, does it perhaps suggest that there is a limit to the amount that banks can lend which is putting a ceiling on mortgage approvals at around their current levels?
It is possible, of course, that the banks simply don’t have the financial firepower to increase mortgage lending significantly above current levels, even if they wanted to. If the mortgage guarantee element of Help to Buy reduces the cost to banks of lending to borrowers with smaller deposits, that could change next year.
But even if lending keeps within its current range, that would signal a huge improvement on this time last year.
Why? Because lending in the summer of 2012 plunged sharply as the Euro crisis made banks increasingly risk averse. Approvals fell well below 50,000 a month for three months in a row. If lending remains at around 53,000 approvals a month for the next five months (from May to September) that would represent an increase of around 26,000 approvals compared to last year. That is not an insignificant number.
So, even if the growth in mortgage approvals stalls, provided it does not go in to decline, we should see marked improvement in lending conditions as the year progresses.