Although mortgage approvals are still up on 2013’s figures, it appears that there has been a significant slump in approvals between June 2014 and July 2014. Financial experts have suggested that this is due to new regulatory proposals, which will see a decrease in the number of high loan to value mortgages. With lenders anticipating significant changes, conservative approaches have been taken to mortgage applications.
In a bid to slow down the number of people who default on their mortgages, the Bank of England introduced a new policy. Said policy will limit the number of people securing high loan to value mortgages. In order to make sure this happens, stricter lending policies are now in place. This means that applications take more time, which has led to the sharp 25% decrease in successful applications between June and July 2014.
Known as the Mortgage Market Review measures, these tough new lending policies require lenders to prove that they can continue meeting their mortgage payments in the instance of a sharp rise in interest rates. The Bank of England has also stated that loans exceeding 4.5 times an applicant’s interest or more should account for no more than 15% of approved mortgages. As such, mortgage lenders may be making more conservative offers.
While these conservative offers theoretically reduce the risk of borrowers failing to meet their payments, they do make life difficult for those living in certain areas of the UK. London and the South East tend to experience consistently high housing prices, and the South West appears to be following their lead. Although average job prices have risen in recent months, and may continue to rise, this isn’t quite enough to ensure those living in the South are able to purchase a home in accordance with the new Mortgage Market Review measures.
Although the drop in approved applications is sharp even by historic measures, financial experts do not expect it to become a growing trend. With such a sharp turn in the way lenders approach mortgage applications, a reduction in approved prices was on the horizon. As applications begin to gather speed and lenders adjust to the new Mortgage Market Review measures, property ownership should become a reality for people across the UK once more.
In the mean time, there are still concerns for those who are self-employed, and therefore have less means of proving their income. Mortgages for those in the self-employed bracket tend to be lower anyway, and with employment opportunities remaining low in some areas of the country, the housing market hasn’t quite addressed all imbalances yet.
While all of this paints a bit of a bleak picture for those living in certain areas of the country, it’s worth considering that successful mortgage applications are still 12% higher than they were this time last year. As such, there is further hope for strong economic growth, which in turn means good news for a lot of business employers and property investors.