'Broken system': Housing fears as home loan approvals slump to 11-year low

'Broken system': Housing fears as home loan approvals slump to 11-year low <i>(Image: Getty Images/iStockphoto)</i>
'Broken system': Housing fears as home loan approvals slump to 11-year low (Image: Getty Images/iStockphoto)

THE dream of buying a house is further away for more people in Scotland as figures show mortgage approvals have slumped to an 11-year low while interest rates soar.

Analysis seen by The Herald shows the average house price in Scotland for the period from July to September was 4.9 times the average salary in the country.

That is the highest since the same period in 2008 - when the house price to earnings ratio was at five. Just before the Covid pandemic hit, the ratio was at 4.2.

The analysis also shows that around 70% of single earners in Scotland are now able to buy a typical first-time-buyer property, assuming they had a 20% deposit.

But three years ago, before the pandemic hit, some 75% found it affordable.

Bank of England figures show that there were just 57,177 house purchase mortgage approvals in October - the lowest for that month since 2011 when there were 52,218.

In October, 2020, there were nearly twice as many mortgages approved, with 104,806 sanctioned.

Alongside this analysts Moneyfacts said the typical two-year fixed rate mortgage interest rate has soared to 6.01%. This time last year it was at 2.34%.

Mortgage rates jumped following the mini-budget in September, with Bank of England base rate rises also pushing up borrowing costs, against a backdrop of households being squeezed by rising bills generally.

Earlier this month, the government's official forecaster predicted that house prices will fall by 9% over the next two years as affordability issues weigh on demand.

The findings build on wider evidence of a market slowdown linked to rising flexible mortgage rates after successive rises to the base interest rate by the Bank of England since December last year to tackle soaring inflation.

Campaigners say the figures show show that the housing system is "broken" and that affordable homes need to be built.

Shelter Scotland director Alison Watson said: “The current situation is yet further evidence of what we’ve known for a long time; our housing system is broken. The only viable long term solution is to buy and build more social homes. Only social housing can provide safe, secure and genuinely affordable accommodation that people need. The housing emergency is already touching communities across Scotland, without more social housing that situation will only get worse.”

Meg Bishop of Living Rent added: "House affordability plummeting and the decrease in mortgage approvals is another indication of how broken our housing system is in Scotland.

"Not being able to access mortgages means that tenants are trapped into renting and forced to pay up to half of their income on rent often to supplement a landlord’s buy to let mortgage.

"This makes saving for a deposit completely impossible, and means that only people with very well paid jobs or access to the bank of mum and dad can escape the rented sector. This widens our society's inequality and leaves working people more and more squeezed for money."

HeraldScotland: House prices continue to rise
HeraldScotland: House prices continue to rise

It comes as lenders have increased their loan loss reserves, with many expecting mortgage defaults to rise sharply throughout the next year.

Santander has put aside £138m for mortgage defaults from June to August this year, while Barclays banked £81m in loan loss reserves during the same period.

And rent arrears amongst tenants in Scotland's low cost home soared this year to a record £174.5m leading to new concerns over the cost of living crisis and fears of a tidal wave of homelessness.

The level of debt involving tenants using housing association and local authority accommodation as of the end of last year has risen by over £37m since before the pandemic. It had soared by £8.5m in just three months.

It was feared there are tens of millions more in rent debt in the private sector in Scotland.

The level of arrears for 2021/22 is at 6.3% of all rent due - the highest since the Scottish Social Housing Charter was introduced by the Housing (Scotland) Act 2010 and came into force in April 2012 Ms Bishop added:"That average house prices are nearly five times the average salary is extortionate, but it masks that what is considered the average salary is far higher than what many tenants earn.

"Not only that, but all our costs and bills have increased. When rent, energy and food and all the other bills are paid, saving for anything, let alone a deposit becomes impossible.

Tenants should not be spending half of their income on rent. To combat this housing crisis, the Scottish government needs to use rent controls to bring rents down."

HeraldScotland: House prices in North Herts dropped by 3.5 per cent in January, contributing to a 2.6 per cent fall over the last 12 months. Picture: Danny Loo
HeraldScotland: House prices in North Herts dropped by 3.5 per cent in January, contributing to a 2.6 per cent fall over the last 12 months. Picture: Danny Loo

Simon Bath, property expert and chief executive of property technology company, iPlace Global said the mortgage market was showing its first signs of tear following a turbulent year across the board.

He said that for aspiring buyers, the drop in mortgage approvals has made the prospective of meeting the lending criteria even more unreachable and predicted a continuing decline in consumer confidence given the volatility of the market.

He said: "What we're seeing in the mortgage market currently is extreme volatility in lending criteria – for example, someone who would receive approval for a mortgage on a property six months ago, would no longer receive it this month. It just goes to show that even those who aren't even on the ladder yet are struggling to keep up with the general volatility of the market.

"As we're moving into a period where monthly repayments are becoming harder to meet, there will naturally be a quicker progression to interest-only mortgages. The problem with interest-only mortgages is the affordability in terms of loan evaluation, but also the requirement to demonstrate how you're going to pay off the capital sum at the end of the mortgage.

"Rising interest rates could put significant financial strain on millions of households who are seeing a decline in disposable income and drop in real wages, and could consequently be forced to take on additional jobs just to keep their home. This is already affecting monthly repayments and could become even more of a concern for households also struggling with rising living and energy costs. Analysts are expecting the bank rate to double before it steadies out – if this is the case, we could potentially see a rise in mortgage arrears and defaults in the short and long term."

A Scottish Government spokesman said: “Scotland has led the way in the delivery of affordable housing across the UK. We are proud to have now delivered 112,993 affordable homes since 2007, over 79,000 of which were for social rent, including 19,727 council homes.

“We have now started to deliver against our commitment to 110,000 affordable homes by 2032, of which at least 70% will be available for social rent and 10% will be in our remote, rural and island communities, making full use of the £3.6 billion being made available in this parliamentary term to support the delivery of social and affordable housing across Scotland.”

“Our Cost of Living (Tenant Protection) Act is providing immediate protection to many tenants who may have faced in-tenancy rent increases during the cost of living crisis “The Tenant Protection Act has given reassurance to renters by temporarily freezing rents and introducing a moratorium on the enforcement of evictions, initially to 31 March, with ability to extend over two further six-month periods.”

Read more by Martin Williams

. Ferguson Marine: Chairman of troubled Prestwick Airport takes helm

. Jim McColl: FM should have known about ferry crisis five years ago

. Scot Gov finds £33m to fund NHS wage rises as cost of living gap soars