Bank of England Lending to Individuals publication released June 29, reported a mortgage approvals increased in the month of May 1.1% but down 1.4% for the quarter and 7.4% for the year. Mortgage approvals appear to be trending sideways and stabilizing, albeit at low levels.
Chart.1 Mortgage Approvals and Real House Price
Chart.4 shows the correlation between UK RICS new enquiries and mortgage approvals. New enquiries herald the changes in mortgage approval by some 4-6 months. We would expect new buyer enquiries to be coincident to leading. In fact, new buyer enquiries indicate that mortgage approvals will remain flat for the next 4-6 months.
Chart.2 New Buyer Enquiries Lead Mortgage Approvals
Typically, mortgage approvals are a leading indicator of the direction of house prices. Mortgage approvals appear to be stabilizing. This may point to house prices stabilizing in the next 3-6 months. New buyer enquiries that lead mortgage approvals by 4-6 months are also stabilizing. A prior blog using the sales-inventory ratio as a gauge of supply imbalance, highlighted a continued slide in house prices. Conversely, on the activity side new buyer enquiries and mortgage approvals indicate that house prices may stabilize or trend sideways. Mortgage approvals are a demand side proxy in the PropRate Residential Scorecard. The PropRate Residential Scorecard applies a scorecard process to gauge market imbalances that may exist and therefore potentially act as a market-timing indicator for residential property prices. Mortgage approvals lead house prices by 3-6 months.