Mortgage Approvals Hit Record Low As Negative Equity Fears Loom Large

By David Sewell Stevens Personal Finance Correspondent Thursday, 8 May 2008

Low morgage approvals spark fears of negative equity When Negative Equity Last Struck... At the end of the 80’s there was a house price boom Increasingly high interest rates made homes unaffordable 1.8m homeowners suffered negative equity London and the South East were worst hit House prices in London fell by 27% 75,500 homes were repossessed in one year Related Money News See our other recent related news stories: Interest rates set to fall to 4% by 2009 Interest rates could fall to as low as 4% by 2009 according to some experts.

THE Bank of England reports that the global credit crisis, fuelled by US housing market problems, is reflected in the dramatic slowdown in the home mortgage market, with new mortgage approvals at the lowest level on record.

Mortgage lenders are increasing rates and withdrawing deals, especially for borrowers without significant deposits.

Some major lenders have withdrawn from the market altogether.

Mortgages down 46%

The British Bankers’ Association (BBA) reports that new home mortgages in March were 46% down year on year.

Meanwhile the Bank of England announced an emergency £50bn Special Liquidity Scheme for lenders to swap potentially risky mortgage debts for secure Government bonds – a move which experts feel has failed to stop the rot.

First-time buyers are having difficulty in finding a mortgage deal without a hefty deposit, new mortgage approvals have fallen to their lowest recorded level and property sales are slowing markedly.

Negative equity

With house prices falling (down 1.8% this quarter) and the trend expected to continue, fears of substantial negative equity are real.

Negative equity means the value of a home is less than the outstanding balance on its mortgage.

Insignificant

Whilst some experts say the drop is relatively insignificant in the context of unrealistically rising property prices in recent years, there are indications that the price bubble has burst and indices will move into negative territory.

Small consolation is that economists predict that negative equity will impact on a smaller proportion of owners than in the 1990’s, as fewer have loans in excess of 90% of valuation.

The Prime Minister stated that the housing market was one of a number of economic issues ‘to deal with’ but remains confident that we will come through it as a country.