British lenders approved the fewest mortgages in nearly two years last month as the UK housing market continued to slow after June’s vote to leave the EU, raising the chance of an outright fall in prices next year.
House purchases have been falling since the start of the year, buffeted by higher taxation on investment properties as well as the EU vote. Housing market slowdowns have typically heralded future weakness in broader British economic growth.
However, other figures yesterday suggested for now UK consumers are continuing to spend and to borrow heavily, placing the Bank of England in a quandary as it considers whether it will need to cut rates for a second time this year.
The number of UK mortgage approvals last month dropped to its lowest since November 2014 at 60,058 — roughly in line with the decline forecast in a Reuters poll, monthly BoE data showed.
Britain’s central bank predicted, last month, that approvals in the second half of 2016 would average 56,000 a month although it recently said the slowdown could be less severe.
Some economists still expect 2017 will bring the first fall in prices since the depths of the financial crisis in 2009.
“Housing market activity is likely to be increasingly pressurised by appreciable uncertainty following the UK’s vote to leave the EU,” IHS Global Economics’ Howard Archer said. He expects a 3% fall in UK house prices next year.
The regulatory backdrop is also becoming less favourable for some corners of the housing market.
UK finance minister Philip Hammond said he did not plan to extend his predecessor’s scheme to indemnify high loan-to-value mortgages, which expires at the end of this year, though other subsidies for house purchase will continue.
Separately, the BoE urged all lenders to factor in further tax rises which will hit small landlords next year when considering new loans.
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