UK Residential Mortgage Lending & Home Sales: The Last Ten Years

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There has historically been a close link between Mortgage approvals and Home Sales in the United Kingdom, with both peaking in January 2006 at 146,854 and 153,465 respectively – and both reaching their low points in January 2009 at 21,466 and 32,752. In 2005 and 2006, mortgage approvals totalled 94.1% and 90.2% of home sales, which fell to 67.2% before rising to 82.8% in 2009. It ranged from 75.5%-78.3% from 2010 to 2013, before falling to 68.2% in 2014 and growing to 71.4% in 2015.

However, in the first three quarters of 2016, the number of mortgage approvals reached 82.9% – the highest level since 2007. This occurred despite a large surge in sales in March, as buyers tried to complete purchases before the 3% surcharge on buy-to-let properties and second homes kicked in. These statistics would indicate a fall in cash buyers as a percentage of total buyers. However, the absolute number of both mortgage approved and home sales remains far lower than before the crisis.

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The total value of mortgages approved was higher than the total value of home sales for the first time on record in April 2016, the month the Stamp Duty increase came into effect. However, despite the large spike in March sales, the ratio of the Value of Homes Sold to the Value of Mortgages approved its highest level since 2006 at 68.9% in the first three quarters of 2016. In 2005 it was 73.6%, and it was 71.9% in 2006. However, it fell to 65.7% in 2007 and 51.3% in 2008. From 2009 to 2013, it ranged from 62.1%-68.8%, before falling to 58.8% in 2014. In 2014 it rose slightly to 61.4%, before reaching 68.9% in the first three quarters of 2016. The total value of mortgages approved remains substantially lower than in 2007.

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Despite a rise in the total number of mortgages as a percentage of the total number of sales, leverage ratios have fallen on individual properties. This indicates that the number of cash buyers is falling but that individual buyers are accepting lower leverage ratios. In 2005, the average value of an approved mortgage was 78.2% of the average house price, with this rising to 79.7% in 2006 and falling to 76.3% in 2008. From 2009 to 2011 the ratio rose from 80.8% to 82.8% – before jumping to 87.9% in 2012 and 88.2% in 2013. In 2014 it fell to 86.2% and again to 86.0% in 2015. In 2016, it has fallen to its lowest level since 2009 at 83.0%.

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