- A significant upward surprise as UK Finance reported mortgage approvals for house purchases spiked to 43,700 in November, which was the highest level since January 2017. Mortgage approvals had previously fallen back over the previous three months to be at a seven-month low in October.
- November's jump in mortgage approvals was all the more surprising as the expectation had been that housing market activity would be hampered by heightened political uncertainties. This was certainly indicated by November surveys, notably from the RICS.
- Indeed, the housing market had clearly been pressurised over the previous three months by a cocktail of Brexit, economic and domestic political uncertainties. It is also notable that while consumers have benefitted from improved earnings growth and rising employment over much of 2019, these fundamentals reached a peak around June/July in terms of employment and earnings growth.
- It is possible that mortgage approvals were lifted in November by some house buyers looking to move before the General Election amid concerns over a potential change of government.
- Housing market data can be volatile from month to month, so we would not read too much into November's spike in mortgage approvals – especially as uncertainties were at a peak then.
- We expect house prices to rise by around 2% over 2020, modestly up from the increases of 1-1.5% over 2019 that are likely to be shown by most measures.
- With the UK General Election delivering a decisive result and the UK now set to leave the EU with Boris Johnson’s deal on 31 January, the housing market may get a modest near-term leg up from reduced uncertainties. The property website Rightmove reported a marked pick-up in buyer enquiries in the immediate few days after the General Election.
- Housing market activity – and possibly to a lesser extent prices – could be given a modest lift in 2020 if the Government introduces specific measures aimed at boosting the sector in the Budget (although the Conservative’s plans to cut Stamp Duty appear to have been shelved). Low mortgage interest rates and a shortage of properties for sale should provide some support to prices.
- However, the economy still looks set for a challenging 2020 and there will still be appreciable uncertainties, including on the Brexit front – so that the upside for house prices in 2020 is likely to be limited. It is also notable that the fundamentals for consumers have probably peaked at least for the time being, with earnings growth recently slowing from its July 11-year high and employment essentially flat since midyear.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“A significant upward surprise as UK Finance reported mortgage approvals for house purchases jumped to a near three-year high of 43,700 in November. They had previously fallen back over the previous three months to a seven-month low of 42.1k in October.
“It is difficult to assess why mortgage approvals spiked in November. One possibility could be that some house buyers were keen to get their move done before the General Election due to uncertainties.
“November's jump in mortgage approvals was very much a surprise as the fact that they had fallen back over the previous three months to be at a seven-month low in October had pointed to housing market activity being pressurised by recent heightened uncertainties. It is also notable that the labour market is now showing increasing signs of faltering with both employment and earnings growth coming off the highs seen around July. Indeed, the peak in mortgage activity in July coincided when the fundamentals for consumers were particularly favourable in terms of employment reaching a record high in the three months to June and earnings growth hitting an 11-year high of 3.9% in the three months to July.
“Survey evidence pointed to housing market activity continuing to be constrained by uncertainties in November. In particular, the RICS housing market survey reported that the results of its November survey “continue to display a cautious approach from both buyers and sellers. Key metrics capturing buyer demand, new instructions and sales remain in negative territory. Much of the anecdotal commentary suggests that uncertainty surrounding the General Election and Brexit are continuing to stifle activity.” Specifically, the survey showed new buyer enquiries fell for a third successive month in November after being flat in August and rising modestly in June and July. Meanwhile, newly agreed sales also fell for a third successive month, albeit at a reduced rate.
Outlook for house prices
“Housing market activity and prices can be volatile on a month-to-month basis and it is important not to read too much into any one set of data or survey.
“The housing market may get a modest leg-up from the General Election delivering a decisive Conservative win and the UK now inevitably leaving the EU with Boris Johnson’s “deal” on 31 January. We believe an easing of uncertainties could see house prices rise by around 2% in 2020. Housing market activity – and possibly to a lesser extent prices – could be given a modest lift in 2020 if the Government introduces specific measures aimed at boosting the sector in the Budget (although the Conservative’s plans to cut Stamp Duty appear to have been shelved).
“Furthermore, mortgage interest rates are at historically low levels. Indeed, there is clearly a real possibility that the Bank of England’s could cut interest rates in 2020.
“Meanwhile, a shortage of houses on the market will also likely offer some support to prices. The latest RICS survey showed new instructions to sell fell for a fifth successive month, and sharply, in November; properties coming on to the market had previously broadly stabilised over June-August following 11 months of declines through to May. Consequently, average stock levels on estate agents’ books in November were close to the lowest level in the survey’s history. Meanwhile, even if ultimately successful, the Government’s recent – and ongoing – initiatives to boost house building will take time to have a significant effect so are unlikely to influence house prices in the near-term at least.
“However, the economy still looks set for a challenging 2020 even if there is a Brexit deal so that the upside for house prices is likely to be limited. Furthermore, Brexit concerns could pick up again as 2020 progresses, due to concerns over what will happen at the end of the year if the UK and EU have failed to reach agreement on their longer-term relationship and the transition arrangement is due to end. Both sides have to agree to an extension of the transition arrangement and Boris Johnson is planning to enshrine in parliamentary law that the UK will not seek an extension.
“While a positive for the housing market is that consumers’ purchasing power has picked up appreciably since mid-2018 and employment recently reached a record high in mid-2019, these healthier fundamentals likely peaked around mid-2019. Specifically, real earnings growth improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019 – but it has since eased back to 1.5% in the three months to October. We suspect earnings growth is likely to stabilise at or just below recent lower levels.
“Meanwhile, employment has essentially flat-lined since mid-2019 and the labour market may well be subdued in the near term at least as companies face a soft domestic economy and still significant uncertainties. Employment reached a record high in the three months to June (although it has since flat-lined).”
Consumer credit growth slowed to seven-month low in November
- UK Finance also reported annual net unsecured consumer credit growth slowed to a seven-month low of 4.0% in November from 4.4% in both October and September, which had been the highest for 20 months.
- Credit card spending was down 3.3% year-on-year at £10.9 billion in November.
- The dip in unsecured consumer credit growth reported by UK Finance in November tied in with evidence of slower consumer activity. Retail sales volumes dipped 0.6% month-on-month in November, although this was likely distorted by Black Friday data falling outside the reporting period. Additionally, private new car sales slumped 6.1% year-on-year in November.
- Until very recently, consumers have seemingly prepared to brush off Brexit and other uncertainties and keep spending at a reasonable pace – helped by improved purchasing power and recent record high employment. However, a number of surveys indicate that consumers have recently become more concerned by the combination of a struggling domestic economy, heightened domestic political and Brexit uncertainties and a deteriorating and more fractious global economic environment.
- Meanwhile, lenders have become more careful about advancing unsecured credit – the third quarter of 2019 saw lenders further reduce the amount of unsecured credit available to households and again tighten lending standards.
- Significantly, the fundamentals for consumers probably got as good as they were going to get in the summer and they are currently showing some slippage – although they are likely to remain relatively decent. Certainly, employment has come off its mid-2019 peak level and it dipped by 58,000 in the three months to September. Meanwhile, annual earnings growth eased back to 3.6% in the three months to September from an 11-year high of 3.9% in the three months to July and further slippage looks more likely than not. On the positive side for consumers, inflation is limited and looks likely to remain so.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“UK Finance also reported that annual net unsecured consumer credit fell back to a seven-month low of 4.0% in November after bring stable at a 20-month high of 4.4% in October. It has previously climbed to the peak of 4.4% from a low of 3.5% in February (the lowest since November 2014). Even at the peak of 4.4%, annual unsecured consumer credit growth remains substantially below the peak level of 7.3% seen in October 2016.
“The slowdown in unsecured consumer credit growth in November came amid evidence of slower consumer activity. Retail sales volumes dipped 0.6% month-on-month in November although this was likely distorted downwards by Black Friday occurring after the reporting period. Additionally, private new car sales fell 6.1% year-on-year in November.
Consumers have recently been cautious overall
“It remains to be seen what impact the recent decisive General Election result and now certain UK exit from the EU on 31 January with Boris Johnson's deal has on consumer behaviour.
“There does seem to be have an immediate spike in consumer confidence with GfK reporting consumer confidence rising to a seven-month high in December from November's equal lowest level for 2019 (and since mid-2013).
“There had been signs in the latter months of the year that consumers had become more concerned by the combination of a struggling domestic economy as well as heightened domestic political and Brexit uncertainties. Up until then, consumers had seemingly been prepared to brush off Brexit and other uncertainties and keep spending at a reasonable pace – helped by improved purchasing power and recent record high employment. Real earnings growth improved significantly from mid-2018, rising from just 0.1% to a near four-year high of 2.0% in the three months to July 2019. Also helping matters, employment reached a record high of 32.811 million in the three months to June.
“However, the fundamentals for consumers may have peaked around mid-2019, although they are likely to remain relatively decent.
“Employment essentially flat-lined between the three months to June and the three months. Meanwhile, annual earnings growth dipped to 3.2% in the three months to October from an 11-year high of 3.9% in the three months to July. Regular earnings growth moderated to 3.5% from 3.9%. On the positive side for consumers, inflation is limited and looks likely to remain so.
“Additionally, lenders have become more careful about advancing unsecured credit. Indeed, the latest Bank of England’s credit condition survey indicated that lenders reduced the amount of unsecured credit available to consumers in the third quarter of 2019 for an 11th successive quarter. It was expected to decline further in the fourth quarter. Additionally, lenders were reported to have markedly further tightened their lending standards for granting unsecured consumer loan applications in the third quarter of 2019. This was a 12th successive quarter of tightening standards. A further and even more significant tightening of lending standards was anticipated over the fourth quarter of 2019.”