Press release

27 Jan 2020 London, GB

Mortgage approvals for house purchases spiked to highest level since August 2015 in December

UK Finance reported mortgage approvals for house purchases spiked to 46,815 in December, which was the highest level since April 2015.

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  • UK Finance reported mortgage approvals for house purchases spiked to 46,815 in December, which was the highest level since April 2015. Mortgage approvals in December were highly likely boosted by increased confidence and reduced uncertainties among housing market participants following the decisive General Election result.
  • December’s jump in mortgage approvals adds to a growing amount of firmer data and survey evidence suggesting that the housing market could well be changing up a gear after a lacklustre 2019 (with particular softness around the third quarter). Certainly, latest survey  evidence (from RICS and Rightmove) indicates that the housing market has had an initial leg-up from increased optimism and reduced uncertainties following the decisive General Election result, as well as greater near-term clarity on Brexit with the UK now leaving the EU on 31 January with a deal.
  • Despite this, we remain relatively cautious over the sector’s overall prospects for 2020 and suspect that the upside may well be limited.
  • Nevertheless, we have modestly raised our forecast for house price gains over 2020 to 2.8% from 2.0%, and there is clearly a possibility that they could rise more than this. This partly reflects the fact that we have recently raised our UK GDP growth forecast for 2020 to 1.2% from 1.0%.
  • 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 on 11 March (although a cut in Stamp Duty looks unlikely). Furthermore, mortgage interest rates are at historically low levels and there is clearly a very real possibility that the Bank of England could cut interest rates in 2020. Additionally, a relative shortage of properties for sale is likely to continue to provide some support to prices.
  • However, the economy still looks set for a pretty challenging 2020 and there will still be appreciable uncertainties, including on the UK-EU relationship front – so that the upside for house prices in 2020 is likely to be limited. Additionally, while the fundamentals for consumers should still be pretty decent in 2020, we suspect that earnings growth will be below the peak levels seen around mid-2019 and that employment growth will be slower overall.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“UK Finance reported mortgage approvals for house purchases jumped to 46,815 in December, taking them up to the strongest level since August 2015. This was up from 44,058 in November and a seven-month low of 41,322 in October. Mortgage approvals had previously fallen back for three months running to October’s seven-month low from 43,328 in July.

“It is highly likely that mortgage approvals in December were significantly lifted by increased confidence and reduced uncertainties among housing market participants, following the decisive General Election result. November’s jump may have been due to some house buyers being keen to move before the General Election in case it had resulted in any shocks. It is also notable that employment bounced back in the three months to November after some slippage in the third quarter, although earnings growth was limited to 3.2% (down from a mid-year peak of 3.9%).

“Prior to November, mortgage approvals for house purchases had fallen back for three successive months to be at a seven-month low in October indicating that activity was being pressurised by heightened uncertainties over the domestic political situation and Brexit. It was also notable that the labour market showed signs of slippage over the third quarter after employment had reached a (then) record high in June and earnings growth hitting an 11-year high of 3.9% in the three months to July.

“Survey evidence suggests that the housing market has got an initial lift from reduced uncertainties following the decisive General Election result. In particular, the RICS housing market survey reported that its December survey pointed “to an uplift in sentiment following the result of the General Election. Sales expectations have risen sharply and a number of key activity metrics have moved into positive territory for the first time in several months.” In particular, the survey showed that the buyer enquiries balance jumped to +17 in December from -5 in November, with interest up across all regions. Additionally, the agreed sales balance improved to +9 (from -6) which was the first positive reading since May. A balance of +31% of surveyors expect transactions will increase over the next three months.

“Additionally, Rightmove’s latest survey (covering 8 December to 11 January) reported that there had been a 15% year-on-year increase in buyer enquiries and also a 7.4% year-on-year increase in sales agreed. Additionally, 65,000 properties were reported to have been marketed, the largest reported rise for the time of the year for the survey.

Outlook for house prices

“Recent firmer data and survey evidence suggests that the housing market may be changing up a gear after a lacklustre 2019, with particular softness around the third quarter.

“Latest survey evidence indicates that the housing market has had an initial leg-up from increased optimism and reduced uncertainties following the decisive General Election result, as well as greater near-term clarity on Brexit with the UK now leaving the EU on 31 January with a deal. This is clear in latest surveys by the RICS and Rightmove.

“While we suspect that the housing market may get a further near-term boost from reduced uncertainties, we remain relatively cautious over housing market prospects over 2020 and suspect that the upside will likely be limited.

“Nevertheless, we have modestly raised our forecast for house price gains over 2020 to 2.8% from 2.0%, and there is a possibility that they could rise more than this. This partly reflects the fact that we have also modestly raised our UK GDP growth forecast for 2020 to 1.2% from 1.0%.

“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 on 11 March (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 real possibility that the Bank of England could cut interest rates in 2020.

“A shortage of houses on the market will also likely offer some support to prices. The latest RICS survey showed new instructions to sell rose in December following the General Election, but this was the first increase in six months and the increase was modest. Furthermore, new instructions to sell were reported to be essentially flat in December outside of London and the South East. Consequently, the number of properties on surveyors’ books remain at historically low levels. Admittedly, Rightmove’s latest survey implied a marked pick-up in properties coming on to the market after the General Election through to early-January, but it remains to be seen if this will be sustained.

“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 pretty challenging 2020 (despite our upward growth revision), so the upside for house prices is likely to be limited. Furthermore, Brexit concerns could very well 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 has reached record highs, latest developments for consumers have been somewhat mixed. Specifically, having improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019, real earnings growth eased back to 1.6% in the three months to November. We suspect earnings growth is likely to stabilise at or just below recent lower levels.

“Meanwhile, the growth in employment has slowed markedly overall since mid-2019 (notwithstanding a spike in the three months to November). Indeed at 38.901 million in the three months to November, the level of employment was only 90,000 higher than it had been in the three months to June (32.811 million). We suspect employment growth will be less over 2020 than it was in 2019.” 

             Consumer credit growth stable at lowest level since April in December

  • UK Finance also reported annual net unsecured consumer credit growth was stable at 4.0% in December, which matched November’s lowest level since April.
  • Limited unsecured consumer credit growth in December came amid evidence of soft consumer activity. Retail sales volumes dipped 0.6% month-on-month in December and were up just 0.9% year-on-year. Additionally, private new car sales were up just 0.1% year-on-year in December.
  • It is apparent that late on in 2019 consumers became 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.
  • It is still early days to see what impact December’s decisive General Election result – and greater clarity on Brexit with the UK exiting the EU on 31 January with a deal – had on consumer behaviour. Initial survey evidence indicates a clear pick-up in confidence, but it remains to be seen if this is sustained and whether or not it translates into greater willingness to spend.
  • Meanwhile, the fundamentals for consumers are likely to be relatively decent over 2020, although we suspect that earnings growth will remain below the peak level seen in mid-2020 and that employment gains will be modest overall. However, consumer spending power should benefit from low inflation over 2020 (we expect it to average 1.5%; it was at a more that three-year low of 1.3% in December), while some consumers will benefit from April 2020 from the ending of the four-year freeze on working-age benefits. It has also been announced that the National Living Wage will rise 6.2% in April. 
  • There are other factors which may limit the consumer spending. In particular, with uncertainties far from over and the savings ratio still relatively low, many consumers may be keen to avoid dissaving. Meanwhile, lenders have reduced the availability of unsecured consumer credit and tightened lending standards.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“UK Finance also reported that growth in annual net unsecured consumer credit was stable at 4.0% in December, which was the slowest rate since April. It had previously slowed to 4.0% in November from 4.4% in October (the equal highest level with September since February 201). It had 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 had been substantially below the peak level of 7.3% seen in October 2016.

“Limited unsecured consumer credit growth in December came amid evidence of soft consumer activity. Retail sales volumes dipped 0.6% month-on-month in December and were up just 0.9% year-on-year. Meanwhile, private new car sales edged up just 0.1% year-on-year in December.

“Net credit card lending amounted to a relatively modest £86 million in December after a rare net repayment of £147 million in November

Remains to be seen how consumers are influenced in their behaviour by the election result

“It is still early days to see what impact December’s decisive General Election result – and greater clarity on Brexit with the UK exiting the EU on 31 January with a deal – had on consumer behaviour.

“There does seem to be have an immediate spike in consumer confidence according to a number of surveys. GfK reported consumer confidence rose to a seven-month high in December from November's equal lowest level for 2019 (and since mid-2013). A recent Barclaycard survey also showed a marked rise.

“However, it remains to be seen if this improvement in confidence is sustained and whether or not it translates into greater willingness to spend.

“There had been signs in the latter months of 2019 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.

“The fundamentals for consumer confidence are likely to be pretty decent over the coming months, although annual earnings growth is unlikely to match the 11-year high of 3.9% that was seen in the three months to July 2019, and employment growth will probably be lower overall in 2020 than in 2019.

“Average earnings growth moderated to 3.2% in the three months to November, and we suspect it is likely to stabilise around this level. We also suspect that employment growth will be relatively modest over 2020.

“However, good news for consumer purchasing power saw consumer price inflation fall to a more than three-year low of just 1.3% in December, and we suspect it will remain low over 2020 averaging around 1.5%.

“Some consumers will benefit from April 2020 from the ending of the four-year freeze on working-age benefits. It has also been announced that the National Living Wage will rise 6.2% in April.

“There are other factors which may limit the consumer spending. In particular, with the savings ratio relatively low, many consumers may be keen to avoid dissaving.

“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 fourth quarter of 2019 for a 12th successive quarter. It was expected to decline modestly further in the first quarter of 2020. Additionally, lenders were reported to have further tightened their lending standards for granting unsecured consumer loan applications in the fourth quarter of 2019. This was a 13th successive quarter of tightening standards. A further significant tightening of lending standards was anticipated over the first quarter of 2020.”