Press release

3 Jan 2020 London, GB

Mortgage approvals edge up in November

The Bank of England reported that mortgage approvals for house purchases edged up in November from a seven-month low in October.

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  • The Bank of England reported that mortgage approvals for house purchases edged up in November from a seven-month low in October. There may have been a small lift in activity in November from house buyers keen to move home before the General Election to avoid any uncertainties.
  • Housing market activity was seemingly hampered in the latter months of 2019 by an unappetising cocktail of Brexit, economic and domestic political uncertainties. While consumers have benefitted from improved earnings growth and rising employment over much of 2019, these fundamentals reached a peak around June/July.
  • The Nationwide reported that house prices edged up 0.1% month-on-month in December; however, the year-on-year increase climbed to a 13-month high of 1.4% from 0.8% in November, reflecting the fact that house prices had fallen 0.6% month-on-month in December 2018.
  • We expect house prices to rise by around 2% over 2020, modestly up from the increase of 1.4% over 2019 shown by the Nationwide.
  • With the UK General Election giving a decisive result and the UK now set to leave the EU with Boris Johnson’s deal on 31 January, the housing market may have a modest near-term leg up from reduced uncertainties. 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 lift modestly 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:

“The Bank of England reported that mortgage approvals for house purchases rose modestly to 64,994 in November after slowing to a seven-month low of 64,662 in October from 65,825 in September and a 17-month high of 67,060 in July. Mortgage approvals had previously climbed to July’s high from 66,344 in June, 65,558 in May and a 15-month low of 62.622 in March.

“At 64,994 in November, mortgage approvals were below the middle of the 63,000-68,000 range that has broadly held since late-2016.

“There may have been a small lift to mortgage approvals in November from house buyers keen to get their move done before the General Election to avoid any shocks or uncertainties that could arise.

“Overall though, housing market activity has been pressurised in recent months by 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 influential 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.

Nationwide reports house prices edged up 0.1% in December

“The Nationwide reported house prices edged up 0.1% month-on-month in December. This followed an increase of 0.5% in November, which had been the largest monthly rise since July 2018 and followed an increase of 0.2% in October. There had previously been a drop of 0.2% in September and a flat performance in August.

“The annual rise in house prices rose to a 13-month high of 1.4% in December, helped by the fact that prices had dipped 0.6% month-on-month in December 2018; this was up from 0.8% in November, 0.4% in October and an eight-month low of just 0.2% in September. September’s reading had been only just above the near six-year low of 0.1% seen in January. The 2019 high for house prices was 0.9% in April.

“The three-month/three-month growth rate in house prices rose to 0.4% in December, from 0.3% in November and 0.2% in October.

Outlook for house prices

“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 possibility of cutting Stamp Duty appears to have been shelved). 

“Furthermore, mortgage interest rates are at historically low levels. Indeed, there is clearly a very 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 pretty 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 markedly influence house prices in the near term at least.

“However, the economy still looks set for a challenging 2020 even with a Brexit deal, so 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..

“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.”

 …

Consumer credit growth slowed in November to lowest level since June 2014

  • The Bank of England also reported that year-on-year unsecured consumer credit growth slowed to 5.7% in November, which was the weakest rate since June 2014.
  • Net unsecured consumer credit amounted to just £563 million in November, which was the smallest rise since November 2013. A particularly notable development saw credit card repayments exceed borrowing for the first time since July 2013.
  • 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. Additionally, private new car sales slumped 6.1% year-on-year in November.
  • 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 were signs late on in 2019 that consumers had become more careful in their spending as they faced the combination of a struggling domestic economy as well as heightened domestic political and Brexit uncertainties. Prior to this they had been pretty resilient – helped by improved purchasing power and recent record high employment.
  • 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. Employment flat-lined through to the three months to October after reaching a record high in the three months to June. Meanwhile, annual earnings growth fell back to 3.2% in the three months to October from an 11-year high of 3.9% in the three months to July. 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:

“The Bank of England also reported that annual growth in unsecured consumer credit slowed again in November to be at the lowest level since June 2014.

“Specifically, annual unsecured consumer credit growth fell back to 5.7% in November after rising to 6.1% in October from 5.9% in September (which had previously been the lowest growth rate since June 2014). October had marked the first increase in the annual growth rate for 16 months.

“Annual unsecured consumer credit growth has essentially been on a downward trend since November 2016. It has come down from 6.1% in August, 6.3% in July and a peak of 10.9% in November 2016. The overall slowdown in consumer credit growth has clearly been significantly affected by weaker private car sales as this has reduced demand for car finance.

“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.

“Net unsecured consumer credit amounted to just £563 million in November, which was the smallest rise since November 2013. A particularly notable development saw credit card repayments exceed borrowing for the first time since July 2013.

Consumers and lenders more cautious

“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 well have peaked around mid-2019, although they are likely to remain relatively decent. 

“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 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.”