In These New Times

A new paradigm for a post-imperial world

Painful economic correction looms as mortgage lending collapses

Posted by alfied on July 2, 2008

They say correction, we say depression; either way, it’s coming down.

The risks of a painful correction in the economy are increasing, judging by economic data showing new mortgage lending has collapsed, consumer confidence near all-time lows, and lower productivity that will put pressure on businesses to cut jobs.

The Bank of England said yesterday that mortgage approvals for house purchase slid from 58,000 in April to 42,000 in May, much lower than analysts had expected and 64% down on a year earlier. First-time buyers have almost completely disappeared and the mortgage market is at a standstill as Britain endures its worst housing slump since the 1970s, official data suggested yesterday.

The figures confirm the speed at which conditions in the housing market have deteriorated. Mortgage approvals are one of the best guides to the likely course of house prices, as they reflect new funding entering the market.

They are now at the lowest level since the Bank began recording monthly data in 1993 – although figures from before 1999 are not strictly comparable.

The non-bank lenders most reliant on wholesale funding have almost stopped new lending, with mortgage approvals less than a tenth of last summer’s peak.

‘The housing market is not the primary focus for the monetary policy committee, but these data will alleviate some of the pressure for an immediate hike in Bank rate,’ said Ross Walker, economist at the Royal Bank of Scotland.

An increase in net mortgage lending of £4.1bn was well below the six-month average of £7.1bn, even though remortgaging approvals have dropped more modestly.

Financial Times, Daily Telegraph, The Times

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