Mortgage approvals at lowest levels since 1993: what this means for you

New data reveals the depth of Covid-19 on mortgage approvals in the UK; here's what this means for prospective home owners

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(Image credit: Getty)

The UK mortgage approval rates have tumbled, according to the latest figures released by the Bank of England. The figures revealed are showing the lowest approval figures since this type of record of mortgage approvals began in 1993, with approval levels down nearly 90 per cent from pre-pandemic February levels, and down to just 9,300 approvals in May from 15,800 in April. 

The last drop is perhaps the more worrying of the two: while mortgage approval rates were always going to be down purely because the housing market was largely inactive by comparison with February; the fact that mortgage approvals were lower in May, which is when the housing market reopened, indicates that the figures are not just being skewed by the lockdown. 

These figures are quite extraordinary: mortgage approvals in May 2020 were a third of what they were at the worst period of the 2008 financial crisis. This is an unprecedented situation for a whole generation of potential and current home owners. 

It isn't just first-time buyers who aren't being approved; remortgage approval level have also fallen by over 40 per cent since February. This confirms some economists' and property experts' suspicions that lenders are withholding mortgages out of fear of a housing market crash later in the year, which in turn is making potential buyers adopt a 'wait-and-see' approach and holding off from buying. 

The housing market is finding itself in a gridlock position: on the one hand, both lenders' and buyers' caution is understandable – we still don't know how deep the economic impact of Covid-19 will be. Reliable indicators of employment levels and the extent of the reduction in earnings will only be seen in autumn, after the government Employment Retention Scheme ends in October. 

'Short/medium-term, mortgage lenders are going to start requiring larger deposits and move the parameters of their stress tests/affordability calculations – this combined with current job losses and income uncertainty will undoubtedly take many buyers out of the market,' Ross Counsellchartered surveyor and director at Good Move told the Guardian yesterday.

If mortgage approval rates remain at such historically low levels, then the house price crash that lenders are fearing is almost guaranteed by the end of the year, and it won't be down to unemployment levels.

However, Ross Counsell also adds in the Guardian that 'Long-term we expect to see a boost in the property market across the UK alongside a lift in mortgage and re-mortgage approvals. However, it’s important to note that this is thoroughly dependent on the government’s continuing plans to support people’s jobs and household income.'

Mark Harrischief executive of mortgage broker SPF Private Clients, also speaking in the Guardian yesterday was more optimistic: '...lenders remain keen to lend and awash with cash to do so. With the backlog of valuations clearing now that surveyors can once again carry out valuations, we expect mortgage approvals to pick up. Mortgage rates remain extremely competitive and lenders are slowly returning to higher loan-to-values, which is good news for first-time buyers in particular.’

So, it's a mixed picture, with mixed opinions about what is going to happen. Our best advice: if you are a first-time buyer or looking to remortgage, you should be weighing your options until you know whether your job is secure, for example if you're currently furloughed. This should be the main indicator for you of whether or not you should be taking on a mortgage. 

Want to know how a mortgage would fit into your current finances? We've teamed up with online mortgage expert Habito; use their free comparison tool below to find out how much your could borrow and – importantly – speak to one of their expert advisors for unbiased advice. 

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