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UK mortgage approvals declining

Investors thought October was a bad month with approvals down to just 89,000, but in November, they plummeted another 6,000 to just 83,000. Statistics indicate that approvals are their lowest in two years.

Housing prices are faring little better. While they started 5 – 7 percent higher at the outset of 2007, in the final days of the year, rapid fall off was experienced due to the impact higher interest rates were having on the economy.

Hope is rising that the Bank of England may soon announce another cut in interest rates.  Rates were cut in the beginning of December 2007, settling at 5.5% instead of the former 5.75%.  Mortgage payment defaults are gloomily predicted to grow in 2008, as the global credit market is expected to worsen.  Before December, the last rate cut from the Bank of England was in August 2005.

Banks are inclined to loan less money because of the higher cost to them and the lessening availability of credit throughout the country.  Lenders are becoming wary of the greater risks entailed in loaning money in the market of today.  It is hard for lenders to get the money to loan for mortgages as the credit crunch is making times exceedingly difficult for them as well.

That is especially bad news for first-time home buyers in today’s market as these indicators send housing prices soaring, and with borrowing money becoming more difficult, so is purchasing new property.  The market now is feeling the aftereffects of the increases to borrowing that were first seen by the Bank in the middle of 2006.

These factors combined are likely to destabilize the demand for houses in the short-term, as new home buyers are predicted to hold off on making that all important investment until the market turmoil settles a bit.

The Bank of England isn’t the only affected party. The downturn of housing prices in the U.K. is also affecting Northern Rock bank, who is experiencing troubles.  Persons having savings in the bank are assured by the government that their money is safe, but that’s little comfort to investors in the housing market.  Northern Rock needs to be acquired and rescued, but as housing prices fall, so do investors’ willingness to jump in and put money up against Northern Rock’s mortgage assets in this day of decline.

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