Mortgage approvals fall but the Brexit-related drop in lending 'looks behind us'

Mortgage approvals fell sharply over the year in September, weighed down by stamp duty hikes, affordability issues, and uncertainty surrounding Brexit. But one analyst said the "slide in lending looks to be behind us".

The Bank of England said there were 62,932 mortgage approvals for house purchase in September 2016, down 9.6% on the same month a year before. Month-on-month, however, this was a 3.2% rise. Remortgaging approvals increased 3.3% annually to 42,440. This was also 5.1% higher than in August 2016.

"In all, the slide in lending looks to be behind us," said a note from the consultancy Capital Economics.

"But a rapid recovery in approvals seems unlikely. Some buyers are likely to remain cautious until at least some of the uncertainty surrounding the outcome of Britain's negotiations with the EU, and associated effect on their employment prospects, is resolved.

"At the same time, rising inflation will squeeze growth in real household incomes, which may also weigh on approvals. Thus, while we expect lending to resume its upward trend in 2017, the pace of recovery looks set to be modest."

Mortgage lending should be supported by the Bank of England's decision to slash its base interest rate in half to 0.25%. It also made extra stimulus available for lenders in the wake of the referendum vote to leave the European Union on 23 June, which sparked economic uncertainty.

Negotiations on Brexit between the UK and EU will begin when the government triggers the formal process by invoking Article 50 of the Lisbon Treaty, which it will do before March 2017. The exit process has a two-year time limit.