MORTGAGE approvals fell by 60% in May compared with a year ago and will reduce further over the next three months, according to figures from the Bank of England, leading to fears that we are now heading for a 1990s-style property slump, writes Teresa Hunter.
Lenders granted 42,000 applications for mortgages in May, well down on the typical 119,000 monthly property purchases seen in recent years. However, banks have told Governor Mervyn King that they intend to reduce the number of loans available again o
ver the summer.
The squeeze is already hitting the pockets of many in the Scottish market. Willie Hunter, board member of the Edinburgh Solicitors Property Centre, said its completions were already down 40% in May and June.
The Council of Mortgage Lenders acknowledged that this housing crisis is different from previous property slowdowns in that it is largely being driven by the banks' capacity to lend, rather than from falling customer demand.
CML spokeswoman Sue Anderson said: "In the past, activity has fallen because demand from customers has dried up. But this crisis is supply rather than demand-led. The credit crunch means a huge chunk of mortgage finance has simply disappeared, and banks do not have the money to lend."
However, the knock-on effect is that buyer confidence, and therefore demand, is also now expected to evaporate. So how much worse can it get?
The lowest figures on record for monthly approvals were for January 1993, when just 28,000 mortgages were granted following months of price falls during the previous two years and 145,000 repossessions.
Mortgage pledges first dipped below 40,000 in December 1991 when only 38,000 people were promised advances. In 1992 the housing market witnessed five months when approvals were below 40,000, diving to 32,000 in that September and December, according to the Building Societies Association.
Not surprisingly, house prices fell in 1991 by 1.2% across the UK, in 1992 by 5.6% and in 1993 by 2.9%.
They did not fall in Scotland, though, where they actually rose by more than 6% over the same period; but then Scottish prices had not bubbled in the late 1980s as they had south of the border.
According to the Halifax, house prices across the UK rose by 60% between 1987 and 1989, but they only climbed 33% in Scotland.
That trend of underperforming the UK has been reversed in recent years, with Scottish inflation leading the way. Since the start of 2004, Scottish property has increased in price by 53%, compared with 29% across the UK as a whole.
The full article contains 446 words and appears in Scotland On Sunday newspaper.
