UK housing market gaining further momentum as mortgage approvals rocket

25th February 2014

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Fears over whether the UK property market is entering bubble territory are likely to escalate as new figures show that mortgage approvals jumped to their highest level in more than six years writes Philip Scott.

New numbers from trade body the British Bankers Association (BBA) show that mortgage approvals climbed to a 76-month high of 49,972 in January, up from 47,086 in December.

This marks the eleventh consecutive rise, and represents a massive 57.2% year-on-year jump from 31,787 in January 2013.

BBA statistics director, David Dooks says: “Following on from last month, mortgage borrowing continues to rise compared to a year earlier as mortgage assistance schemes help first time buyers and housing chains more generally. Approvals for new purchases have climbed quite significantly and are now at their highest point since September 2007.”

At this rate mortgage approvals are getting back towards their monthly average of 53,857 during 1997-2013. The peak of 78,129 was reached in November 2006 notes Howard Archer, chief UK and European economist at IHS Global Insight.

He says: “The BBA showing mortgage approvals continuing their recent marked trend upwards to a 76-month high in January maintains the stream of robust news on housing market activity and will fuel concern that we are on the way to a new housing bubble.  Admittedly, mortgage approvals are still modestly below their long-term average, but they are currently picking up with considerable gusto.”

While experts say 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 recent data and surveys have indicated that the strength in house prices is becoming more widespread.

Archer adds: “With latest data and surveys consistently showing markedly rising buyer interest and strengthening housing market activity, house prices look set to see further strong increases over the coming months.

“Housing market activity is being supported by substantially improved consumer confidence, markedly rising employment and extended low mortgage interest rates and is still being fuelled by the Help to Buy initiative.”

Limited supply of houses is a primary factor pushing up prices in an increasing number of areas and not just in London. The latest survey from the Royal Institute of Chartered Surveyors indicated that the headline sales-to-stock ratio rose to 35% in January, the fourth consecutive month above its long run average of 32% and the highest reading since September 2007.

For his part Archer now anticipates that house prices will increase by around 8% in 2014 with gains spread across the country. He says: “There is a genuine possibility that this could prove to be a conservative forecast as there remains a very real danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted significantly by the ‘Help to Buy’ mortgage guarantee scheme which was launched in October.”

The Bank of England has indicated that it is prepared to take further action to rein in the housing market if prices rise markedly across a wider range of areas amid ongoing strengthening activity but while it currently does not see excessive house price rises outside London, BoE boss Mark Carney has expressed concern about the UK’s past record of house booms and busts.

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