New figures from the British Bankers' Association (BBA) show that the number of mortgages approved for house purchases is now at its lowest level since in 1997 it has fallen by more than two thirds in a year.
The Minutes of the Bank's Monetary Policy Committee, held on 9th and 10th July, reveal a growing readiness to use higher interest rates to tackle inflation. It left the MPC split three ways in a 1-7-1 vote to leave rates on hold at 5 per cent.
Vicky Redwood, UK Economist at Capital Economics commented that: "The minutes bring the possibility of an interest rate rise back onto the agenda". Nick Kounis, an economist at Fortis bank agreed: "The minutes underline that an interest rate hike in August remains a very real possibility." Though still important, however, recently the credit crunch and relatively high money market rates have effectively pre-empted any moves by the Bank to raise its official rate.
The release of the BBA's figures, which are a good indicator of short-term trends in the housing market, is likely to put more pressure on the Government to start offering solutions to the problems. The future of the housing market remains bleak, with the suggestion that new mortgages could well have dried up entirely before the end of the year.
David Dooks, director of statistics at the BBA, said: "Another record low number of mortgages approved by the banks for house purchase means that the whole market is likely to be at its least active since the early 1990s."
The sudden drop in mortgage approvals has been partly caused by lenders raising their rates and fees at a time when most people - especially first-time buyers - are having trouble with their finances.
The figures also show that fewer people are choosing to move house, preferring to sit tight until the market regains a bit of stability.
According to the economic research consultancy Capital Economics, activity in the housing market "continues to be tormented by the combination of weak buyer confidence, the faltering economy and labour market, and the mortgage credit squeeze."
