Mortgage approvals slump by 30% as repossessions rise

The UK housing market has suffered a sharp slowdown, according to figures which show that approvals for new mortgages slumped by 30% in a year.

And separate figures revealed yesterday that the number of court actions to repossess houses had risen 15% over the past year to the highest level in nearly five years.

The British Bankers' Association reported 59,905 new home loan approvals in September, down from 85,626 a year earlier, the fourth consecutive monthly decline and the lowest level for three years.

The drop looks more dramatic when compared with the peak of 97,852 approvals in March and adds to a growing run of data suggesting the housing market is cooling rapidly after prices have more than doubled in the past five years. City economists regard mortgage approvals as a key gauge of where the housing market is heading.

"The fact that house prices probably rose too far and too fast has probably stemmed demand on the housing front," said the BBA's director of sta tistics, David Dooks. "At the moment it would appear the Bank of England's interest rate medicine is working," he said, predicting that mortgage lending would continue to weaken in the coming months.

The Bank has raised interest rates five times since last November to 4.75%, and economists say signs that the housing market is coming off the boil make it increasingly likely that rates will not rise further.

"With other latest survey evidence consistently showing waning buyer interest, more houses on the market and it taking longer to sell a house, the BBA data will maintain the Bank of England's concern that a sharp housing market correction could develop," said Howard Archer of the consultancy Global Insight.

Earlier this week the housebuilder Westbury said the usual bounce in autumn sales had been muted because customers were taking longer to commit.

The Nationwide building society will publish its latest monthly house price index today. It is expected to confirm a weakening in prices.

The Nationwide predicts that house prices will stagnate rather than fall, but many experts think prices could tumble by 20%-30% over the next year or two to bring them back into line with their long-run average.

The BBA also said the average value of a mortgage loan fell between August and September by £1,000 to £111,000, although it remained higher than the £105,700 of a year ago, reflecting steep price rises.

Separately, government figures showed that the number of court actions to repossess houses had risen 15% over the past year to the highest level in nearly five years.

The Department of Constitutional Affairs said the total number of actions rose to 18,513 in the third quarter compared with 16,098 a year earlier.

Actual orders made for repossessions during the same period rose 8% year-on-year to 11,186.

However, all the figures are much lower than during the housing market slump of the early 90s.

The figures do not show how many houses are actually repossessed because for a variety of reasons not all orders are carried out. But they do sug gest that the increase in interest rates is starting to stretch some home owners with high borrowing.

The HSBC was not convinced that the Bank of England interest rate rises were having as dramatic an impact as the BBA and repossession figures suggest.

The HSBC's own figures on lending through its 1,700 branches nationwide showed a 7.8% rise in mortgage activity in October after a weak August and September.