Housing market remains 'essentially stagnant' - ITEM Club comments on today's lending figures
Nida Ali, economic advisor to the EY ITEM Club, comments on today's lending figures:
- The fall in mortgage approvals reverses the minor improvement the housing market has seen in recent months
- While a lowering of household debt is a favourable development in the long-term, it doesn’t bode well for the economy in the short term
- The wider economy continues to remain unsupportive and it is necessary for the government to take more proactive measures to jolt the housing market back to life
“Today’s fall in mortgage approvals reverses the minor improvement the housing market had seen in the past couple of months, and reinforces our belief that the market remains essentially stagnant. Mortgage approvals are at less than half their pre-recession peaks, while lending levels are just a fraction of their long-term averages.
“In this uncertain economic environment, it is no surprise that households are eager to lower their debt burden and this is one of the main reasons behind the fall in demand for mortgages. While a lowering of household debt is a favourable development in the long-term, it doesn’t bode well for the economy in the short-term. With these adjustments expected to take a while before stabilising, the housing market still has a long road to recovery ahead.
“Meanwhile, the wider economy remains very unsupportive. The labour market is weak as unemployment remains elevated and is set to increase further, and real household incomes are continuing to fall. An escalation of the Eurozone debt crisis also threatens to halt the very gradual thaw we are seeing in credit conditions.
“In these circumstances, it is necessary for the government to take more proactive measures to jolt the housing market back to life. Abolishing the payment of stamp duty for first time buyers may be one way to start. At any rate, we eagerly await the Chancellor’s autumn statement in November to see what new measures will be introduced towards this end.”