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					Mortgage market statistics
By Stephen Senior Tel: 0171 601 3742 This article summarises the background to changes introduced this month to statistics on the mortgage market (Table 6.2: Lending secured on dwellings). New tables are included in this publication breaking down mortgage approvals by banks and breaking down repayments of mortgage principal for banks and building societies. These data should assist the analysis of mortgage lending and a more useful indicator of housing market activity. Existing data have also been revised to remove some inconsistencies between the bank and building society series.

Mortgage approvals
Mortgage approvals1 are important housing and mortgage market statistics currently published by the Bank of England in Bankstats and in the Lending to individuals statistical release. The number of mortgages approved in a month is used as an indicator of turnover in the housing market and the value of loans is an indicator of the trend in gross mortgage lending. The usefulness of the approvals data as housing market indicators, however, has been limited by potential distortions in the series. When a borrower remortgages2 his/her house, the alternative lender reports a new loan, thereby boosting the aggregate approvals statistics. This remortgage, however, reflects refinancing rather than activity in the housing market. It is therefore desirable to identify the remortgaging element within any mortgage market statistic, so that a truer measure of activity can be obtained. Secondly, a mortgage approval does not have to result in a mortgage being completed and a loan granted. The borrower may decide not to take up the loan and the approval will in such cases be cancelled. When these cancellations are numerous, gross approvals figures may give a misleading picture of future mortgage or housing activity. Monthly aggregate statistics for the number and value of approvals by all mortgage lenders (banks, building societies and other specialist lenders) were published for the first time in April 1993. These aggregate series brought together data collected by the Bank of England, the Department of the Environment and the Building Societies Commission. However, due to the different sources for the approvals data there have been some inconsistencies between the definitions for the different sectors. When institutions have changed sector (for example when a building society converts to bank status) they have switched from reporting on one basis to another. This has led to inconsistencies in the aggregate approvals series over time. The Banking Statistics Review (see article in September 1997 edition of Bankstats) introduced significant changes to a range of statistical data collected from the banks. Mortgage market statistics were one area where the review sought to improve the detail of the data collected. As a result, banks were asked to give greater information on their approvals business. These new data are now being used to improve the published mortgage approvals series.

Bank and building society approvals
The most important inconsistencies in the mortgage approvals series have been between the bank and building society sectors. The main differences between the two sectors on the old basis are summarised below.
Value gross included excluded Banks Number gross included excluded Building societies Value Number net net included excluded included excluded

Cancellations Remortgaging Other lending

The new data from banks identify cancellations of approvals and break down approvals into those for the purchase of a property, those for identified remortgaging and those for ‘other lending’. These new data allow the definitions of bank approvals to be brought into line with those for the building society sector as follows:  both the value and number of bank approvals are now net of cancellations;  the value of bank approvals includes ‘other lending’; and  the number of bank approvals excludes remortgaging. Therefore under the new system (changes in bold):
Banks Value Number net net included excluded excluded included Building societies Value Number net net included excluded included excluded

Cancellations Remortgaging Other lending

Data for both the value and number series have been revised back to October 1997 (when the new information

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An approval refers to the firm offer to a customer of a credit facility secured on a specific house or other dwelling. For reporting purposes, remortgaging is defined as when a borrower who is an existing owner-occupier redeems his/her current mortgage in favour of an alternative form of borrowing secured on the same property with a different mortgage lender. Where a borrower changes mortgage arrangements with the same lender, this is excluded from the approvals analysis except when the borrower increases the overall mortgage debt and this additional borrowing is reported as an ‘other loan’. ‘Other lending’ also includes any loan secured on residential property which is for home improvements, cars etc. 3

first became available) giving an eleven month run of data on the new basis. However, there is now a break in the published (bank and aggregate) approval series from October 1997. Approvals data from October 1997 are not therefore directly comparable with earlier periods. The approvals series calculated on the old basis will no longer be shown in Bank publications, but will be available on request.

Values and numbers
The revised definitions for bank approvals have different implications for the value and number of approvals series. These are outlined below. Value of approvals. Under the new definition, the value of bank approvals is net of cancellations but includes approvals of ‘other lending’. These two adjustments affect the series in opposite directions. The net effect, however, has been to lower the measure of the value of approvals by around £0.3 billion a month over the past year. Despite this, the trend and monthly pattern of this series is substantially unchanged and the seasonal adjustment series used prior to October 1997 have been applied to the new series. Number of approvals. The new definition for the number of bank approvals is more restrictive than the definition for the value of approvals, focusing solely on approvals for house purchase. The revised number of bank approvals series excludes remortgaging and is also net of cancellations. Both of these changes have lowered the number of approvals in any given month (by as much as 40% over the past year). The new series broadly follows the same pattern as the old series and uses the same seasonal adjustment factors. The trend, however, is weaker than previously, reflecting higher remortgaging activity in recent months. The old and new series (not seasonally adjusted) are compared in the table below. Bank approvals
nsa 1997 Oct Nov Dec 1998 Jan Feb Mar Apr May Jun Jul Value (£ millions) Old basis New basis 5,075 4,639 4,608 4,291 3,978 3,604 3,453 3,061 4,593 4,399 5,904 5,636 5,710 5,388 6,000 5,593 6,981 6,599 6,934 6,604 Number (000s) Old basis New basis 88 60 79 55 69 41 60 34 77 49 99 65 96 61 101 63 106 72 116 69

Starting this month, a new table is included in Table 6.2 of Bankstats giving details of the value and number of bank approvals for house purchase, remortgaging and ‘other lending’. The data are monthly, start in October 1997 and are not seasonally adjusted due to the relatively short run of figures available. The data in this table can be used to identify the house purchase element of the (nsa) value of approvals figures. A similar breakdown is shown for the number of approvals series, with the data for remortgaging and ‘other lending’ supplementing the headline figure for the (nsa) number of approvals for house purchase. The tables below show the breakdowns of the value and number of approvals for the past three months. Breakdown of bank approvals
nsa 1998 May Jun Jul nsa 1998 May Jun Jul House purchase 63 72 69 House purchase 3,978 4,548 4,368 Value (£ millions) Remortgaging 1,270 1,657 1,801 Number (000s) Remortgaging 25 31 33 Other lending 344 395 435 Other lending 24 28 30

The new bank mortgage approvals data are reported by a sample of banks representing 95% of the stock of bank mortgage lending (the same sample as used for the other detailed mortgage data published in Bankstats). Some of the banks in the reporting sample, however, are still developing the reporting systems to collect all of the detail used in this analysis. Where this is the case, the business of the reporting institutions is assumed representative of the non reporting institutions. Such grossing up should not affect the overall robustness of the aggregates, but a degree of caution is advised in interpreting the precise figures in the breakdowns.

Building societies
A corresponding detailed breakdown of both the value and number of building society approvals into those for house purchase, remortgaging and ‘other loans’ is not currently available. However, some form of broadly comparable data will be included in Bankstats within the next few months. Quarterly figures are available breaking down gross mortgage lending for building societies3 into those for house purchase, remortgaging and ‘other lending’. The most recent data are detailed below. Breakdown of building society lending (nsa)
Gross lending (£ millions) House purchase Remortgaging Other lending 3,800 940 210 3,060 1,040 210 3,840 1,150 230

To highlight the different treatments of the value and number of approvals the titles of the respective tables detailing these series have been revised. The former is now called Value of all loans approved and the latter is now called Number of loans approved for house purchase.

1997 Q4 1998 Q1 Q2

Breakdown of bank approvals


Source Building Societies Commission.


Repayments of mortgage principal
A second new table in Table 6.2 of Bankstats breaks down repayments of mortgage principal for the bank and building society sectors. The breakdown divides repayments of mortgage principal into regular repayments, other lump sum repayments and full redemptions of mortgage principal. The data for the building societies date back more than thirty years and have already been published in Table 3.2C of the Office for National Statistics publication Financial Statistics. The breakdown for the banks is new and starts in October 1997. Repayments of mortgage principal account for the majority of the difference between gross mortgage lending and net mortgage lending and (when looked at in aggregate for the whole sector) can cast more light on aspects of the mortgage market4. For example, as remortgaging is included in gross lending but excluded from net lending, an analysis of repayments of mortgage principal may give an indication of remortgaging business5. Higher lump sum repayments of mortgage principal may reflect special factors in the economy. For example, following a building society demutualisation some borrowers may have decided to use windfall funds to repay a lump sum of their mortgage debt. The detail on the repayments of mortgage principal are currently reported by building societies representing 95% of building society mortgage lending and banks representing 90% of bank mortgage lending. Data are grossed up to represent the full bank and building society populations.

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Net mortgage lending equals gross lending minus repayments of mortgage principal and other adjustments (such as write-offs). When a borrower remortgages to an alternative lender, the original lender will record a full redemption of mortgage principal for the redeemed mortgage and a fall in the stock of its outstanding mortgage lending. The alternative lender will record an increase in gross lending for the new mortgage and also an increase in the stock of its outstanding mortgage lending. The net effect will be zero on the aggregate stock of mortgage lending, with higher gross lending and repayments of mortgage principal. 5

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