Mortgage approvals were at their lowest level for 11 months in May, according to the Bank of England, thanks to stricter lending rules and rising prices.
The number of mortgages given the go-ahead was 61,707 in May, down from 62,806 in April – the lowest figure since June last year.
The impact of the Mortgage Market Review, introduced in April, is being linked to the slowing number of approvals. Property portal Rightmove suggested that ‘red tape’ is holding up lenders significantly.
Increased lending as property prices increase
Chief economist at PwC, John Hawksworth, added: “The MMR brings in new procedures that rule out the quick granting of mortgages.”
Despite fewer mortgage approvals, net lending in May increased by £2bn month-on-month with an annual growth rate of 1.3%.
It is important to remember that these figures are not likely to have been impacted by the introduction of MMR as the figures were in the system before it was introduced.
Increasing lending reflects rising house prices, which are gaining across virtually all of the UK, although growth in some regions, especially London, is much higher than elsewhere.
Tackling house prices
The Bank of England has said the housing market is the ‘biggest threat’ to the UK economy, with action taken by the Financial Planning Committee to curb excessive lending.
House prices have increased by roughly 10% in the last year, so now loans that are worth more than 4.5 times a borrower’s income can only account for 15% of all mortgages.
“Cooling house prices is no bad thing,” added Mr Hawksworth. “The MMR is designed to help make people aware of the affordability issues surrounding a mortgage.”
In situations where borrowing was allowed to get out of control in the past, it caused major issues for the housing sector and impacted upon many people’s finances.
Reducing financial risks
The new changes should prevent that from happening again, but careful money management is still required to ensure that people are not caught out.
Financial management is extremely important, so keeping spending in check with a prepaid card is a great way of ensuring that you don’t spend more than you would like.
A prepaid card limits spending to the amount on the card at any given moment and is not directly linked to a bank account, making funds safer as a result.
The cards can easily be topped up or replaced if required, while accounts can be checked regularly online if needed.
Unlike credit and debit cards, prepaid cards are not directly linked to a bank account and this also makes fraudulent activity a lot more difficult to carry out.