At the moment, whenever data on the housing market is released, you just know it’s going to be bad. No surprise then to hear that the number of mortgages approved for home purchase have fallen by 20 per cent since last year, and are now to the lowest level in over two years.
Maybe the only surprise in that data is that it was even worse two years ago.
And yet, look at remortgages, and the market is still quite brisk. In September the value of remortgages was Â£12.9 billion, a little above the six-month average.
As for consumer credit, September saw the highest growth rate in two years.
Total debt, by the way, is now running at Â£1.379 trillion. Funny, it only seems like five minutes ago when debt broke through the Â£1 trillion mark. The National Institute of Economics and Social Research now estimates that debt-to-income in the household sector is now 1.66, the highest ratio ever recorded by the Office for National Statistics.
But, take a step back, and we see a different picture emerge. Mortgages for house purchase are falling, but borrowing for other purposes is still rising. It’s this borrowing that is helping to prop up the economy.
The Council of Mortgage Lenders (CML) also revealed a new report yesterday. It released its latest projections. It reckons house prices will rise by 7 per cent this year and 1 per cent next. But the real headline making predictions relates to affordable debt.
CML reckons the number of repossessions taken by first-charge mortgage lenders will rise from 22,700 last year to 30,000 this year, and to 45,000 in 2008. This will be the highest level of repossessions since the mid-1990s.
But don’t panic yet. To put the CML projections on repossessions into context, back in the early 1990s, repossessions went close to 80,000 in a year, and were higher than the level predicted for the following year for four years in succession.
There is a snag with these projections, however. Analysts often seem to ignore the ability of borrowers to borrow more money to pay off debt. Surely one of the reasons why rates of top-up mortgages are so high is because consumers need the money to be able to pay off debt. They are borrowing to fund borrowing.
There is a real danger that in the months ahead, the combination of tighter credit and lower house price inflation will remove the option of being able to borrow to pay off borrowings. This danger has, in our view, been underestimated by most economists.
If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved
© Investment & Business News 2013