The number of new loans being approved in the UK fell from 45,045, to 42,173 in March this year. This is largely due to tighter regulations being enforced by the Financial Conduct Authority
to ensure borrowers are issued with mortgages they can afford.
These regulations manifest in the form of intrusive (loosely translated as farcical and controversial) checks on ones income and spending habits in order to determine whether homeowners can cope comfortably with increased repayments when interest rates rise.
The impact of these reforms will be even more apparent in the coming months. More than 48,000 loans were approved in January this year. The number of home loans approved for house purchases and remortgaging both fell for the third month running.
According to the Council of Mortgage Lenders, gross lending was up 8% this month compared with March to an estimated total of £16.6bn, the highest since August 2008.
What this means is that there is a shift in the mortgage market from multiple low value mortgages to fewer high value mortgages. This trend shows how many buyers are being priced out due to rising house prices, heavily distorting the top end of the property market which drove up the value of the property market in the first place.
In real terms, this translates as a situation where property values will increase to breaking point, where very few can afford to buy, before collapsing altogether.
The Bank of England’s retiring deputy governor, Charlie Bean, has warned home-owners that there could be an interest rate hike to 3% within the next three to five years, meaning loan repayments would increase significantly.
This will cause a Catch-22 situation for many homeowners who will face the collapse of the house market and their house prices.
Or this will result in an interest rate hike which may well push their finances to the limit. We have already seen the detrimental effect of people lumbered with huge mortgages, stumbling into a financial Armageddon.
If only hindsight could prevent history from repeating itself.