Mortgage Approvals Actually Up, Not Down as Reported
Posted on 1 May 2014 by
I was asked today why mortgage approvals fell in March for the second months running, following the Bank of England’s press release which reported a fall of 3.6% in the number of mortgages approved in March compared to February, with the percentage fall similar in both purchase and remortgage approvals.
Some commentators suggested it was because of the MMR but as the today’s figures were for March they relate to mortgage applications submitted well before even the early adopters of the MMR rules implemented them and so the MMR was certainly not a factor.
The answer to what is a conundrum to many is actually very simple. Mortgage approvals did not fall in either February or March – they actually rose in both months. In fact the number of approvals was 15.4% up in March and 8.7% up in February.
The confusion arises from the misleading way in which the Bank of England reports figures in its press release. It only quotes figures which have been manipulated, or to use the technical term much loved by economists “seasonally adjusted.” (This is problem which also afflicts many of the house price statistics.)
Although the Bank’s press releases do state that the figures it quotes are seasonally adjusted this very material fact is rarely included when the figures are reported. In order to get the actual figures one has to drill down into the raft of statistical information in the Bank’s web site.
The seasonally adjusted figures are in fact lower than the actual figures nearly every month except December and January, because the reported figures in these months are massaged upwards by a large margin. This winter the seasonally adjusted figure for December was 31% higher than the actual figure and for January it was 29% higher.
The nonsense of seasonal adjustments is amply demonstrated by reference to the reported figure for January of this year, which was 124,844, whereas the real figure was 96,762. This seasonally adjusted January 2014 figure was in fact the highest reported since October 2008, whereas the real figures showed that in 42 of the 62 months between November 2008 and December 2013 approvals were higher than in January 2014.
The easiest way to avoid this confusion would be for the Bank to include the actual figures in its press releases, along side the seasonally adjusted figures. Of course there will be variations over the course of the year in the number of approvals, but if both sets of figures were presented with equal prominence it should avoid the misleading reporting that the press releases currently produces.
The two figures I always look at for comparison purposes are the actual change compared to the previous month, plus looking at the same two months for the previous year. The actual approval numbers have increased every month since April last year, but you wouldn’t know that from the way the figures have been reported.
If we just look at purchases the actual numbers for the sterling amount and number of approvals increased significantly in both Mar and Feb, despite the press release reporting falls. The actual increase in the value of purchase approvals in March was 22.9% at £11.609bn and in the number 19.7% at 67,626. Again the year on year comparison shows an increase in every month since April last year.
The FCA quite rightly requires all financial services companies to be “clear, fair and not misleading” in the information they provide to consumers. It would be helpful if The Bank of England adopted the same policy in its statistical reporting!
It is worth noting that in respect of the gross mortgage lending figures those reported by the CML are more reliable than the Bank’s, simply because the CML does not manipulate them.
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