Mortgage approvals rocket by more than 40% in a year says Bank of England

3rd March 2014

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The UK’s housing market is showing no signs of slowing down as mortgage approvals jumped to their highest level in more than six years in January writes Philip Scott.

According to the latest figures from the Bank of England, released today, approvals for house purchase loans hit a 74-month high of 76,947 in the first month of the year, up from 72.978 in December and 71,329 in November.

The new numbers show that approvals have now risen for 11 consecutive months.

Overall mortgage approvals were up 42.4% year-on-year from 54,035 in January 2013, which will no doubt maintain if not raise concern that the UK is setting itself up for a new housing bubble.

Markedly improved consumer confidence, rising employment and extended low mortgage interest rates as well as the Government’s Help-to-Buy initiative are all helping to drive the market.

It is worth noting however that mortgage approvals at 76.947 in January were still modestly below their long-term average level. Specifically, mortgage approvals have averaged 84,436 a month since 1993 notes Howard Archer, chief European & UK economist at IHS Insight.

He says: “While the strength of house prices is not yet a serious concern outside of London, it is something that needs to be closely monitored given that a number of recent data and surveys have indicated that the strength in house prices is becoming more widespread. There is rising buyer interest and strengthening market activity across regions.”

With latest data and surveys consistently show markedly rising buyer interest and strengthening housing market activity, house prices look set to see further strong increases over the coming months – especially as a shortage of available properties is exerting further upward pressure on prices in a growing number of locations.

“We expect house prices to increase by around 8% in 2014 with gains across the country. Furthermore, there is a genuine possibility that this could prove to be a conservative forecast,” adds Archer.

While the Bank of England currently does not currently see excessive house price rises outside London, its governor, Mark Carney has expressed concern about the UK’s past record of house booms and busts, and Archer believes the bank will take further action later this year to try and dampen the housing market.

He anticipates that this could very well include the Bank of England recommending to the government that it dilutes the Help to Buy mortgage guarantee scheme; in particular, the £600,000 price limit for a house under the scheme could be cut, perhaps to £300,000.

“Significantly though, the Bank of England has indicated that it would prefer not to use higher interest rates to try and cool the housing market down,” notes Archer.

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