Strong increase in mortgage approvals as first time buyers rush to beat expiration of stamp duty holiday

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s lending figures:

  • Strong increase in mortgage approvals is almost certainly due to the expiration of the stamp-duty holiday for first-time buyers in March
  • Housing market activity remains well below historical norms and is likely to slip back once the holiday has expired
  • The consumer credit figures are at odds with recent stronger retail sales data

“The strong increase in mortgage approvals is encouraging, but this is almost certainly the result of first-time buyers rushing to buy houses before the expiration of the stamp duty holiday in March. This makes it difficult to gauge underlying trends from these figures.
“Despite the firm increase in approvals, housing market activity is still well below historical norms and the market is still being buffeted by numerous headwinds. Given the heightened level of uncertainty, credit conditions are unlikely to loosen significantly in the short-term. The latest Credit Conditions Survey once again highlighted the risk of wholesale funding conditions tightening and any escalation in the Eurozone crisis could easily set us along this path. The labour market also remains weak and consumers are eager to lower their debt burden. A fall in housing market activity is very likely after the Budget, if the Chancellor goes ahead and ends the stamp duty holiday for first-time buyers.

“On the unsecured side, the weak consumer credit figures are again at odds with the much stronger recent retail sales. However the figures are consistent with broader trends, with consumers still struggling with declining real incomes, high levels of unemployment and fragile confidence, discouraging them from adding to already high levels of indebtedness. Against this backdrop, growth in consumer credit is likely to remain muted in the months ahead.”