The number of mortgage approvals in May has fallen to just 42,000, according to new figures published by the Bank of England – an all-time low since records began in 1993.
Compared to May 2007, when 116,000 mortgages were handed out to home buyers, the figures constitute a 64 per cent drop. In April 2008 some 58,000 mortgages were taken out, which means that approvals slumped by nearly 30 per cent in just one month.
Economists described the figures as 'absolutely dire' and 'very disturbing', and warned that the housing market was at the brink of a prolonged downturn of the same extent as those experienced in the 1970s and 1990s. However, the figures prove that this time, fuelled by the global credit crisis, the collapse is progressing much faster.
Simon Rubinsohn from the Royal Institute of Chartered Surveyors (RICS) said: "The figures provide more conclusive evidence that activity in the housing market has fallen off a cliff this year as the lack of availability of mortgage finance has taken its toll on demand."
Despite the fall in property prices the market is currently almost inaccessible for first time buyers, because banks have continuously increased mortgage
rates during the last months and are only willing to lend to those with large deposits.
According to financial information provider MoneyFacts.co.uk the average mortgage rate offered to new customers is currently at 7.05 per cent, up from 6.98 per cent in just a week. Many are also put off by arrangement fees for up to £2,500 just to take out a loan.
The financial data research company Defaqto said the average up-front cost of getting on the property ladder, including stamp duty, fees and a deposit, had climbed to £33,738 – which is 50 per cent higher than last year and 40 per cent higher than the average national salary.
"Housing transactions have seized up not because people don't want to move, but because the lenders won't play fair with mortgages," Nicolas Leeming, director of Propertyfinder.com, commented.
"Rates have been jacked up and terms tightened to unaffordable levels. People are left with no option but to stay put."
In order to facilitate house purchases for first time buyers and pensioners, RICS
has called on the Government to reform the current stamp duty regime which it criticized as 'unfair, inefficient and long overdue for reform'.
RICS is suggesting a sliding three-band stamp duty scale, with no tax due on property bought for £150,000 or less, 2.5 per cent on properties for properties between £150,000-250.000, and five per cent for properties more than £250,000. Also, it says that the rate at which stamp duty is charged should be indexed and annually increased.
"A young couple moving from their first £200,000 flat to a £300,000 family home currently pay £9,000 tax to the Government," a RICS spokesperson said. "This was not such an issue when they saw significant annual growth in the value of their first home, but will now be a key consideration."
RICS estimates that the reforms would be a major incentive to for buyers as they would cut stamp duty significantly for all property purchases less than £1 million, which amount to 99 per cent of all transactions.
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