Press release

30 Mar 2020 London, GB

Housing market set to be brought to a standstill

The early-2020 upturn in the housing market is now being brought to an abrupt halt by the impact of coronavirus on the economy, households and people’s movements.

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  • The Bank of England reported that mortgage approvals for house purchases rose to 73,546 in February, taking them to the highest level since January 2014. This followed a marked increase in January.
  • The data provides further evidence that the housing market had a leg-up at the start of 2020 from increased optimism and reduced uncertainties following December’s election (reinforced by greater near-term clarity on Brexit with the UK having left the EU on 31 January with a deal). Data from the Halifax and the Nationwide indicated firmer house prices overall in January and February.
  • However, the early-2020 upturn in the housing market is now being brought to an abrupt halt by the impact of coronavirus on the economy, households and people’s movements.
  • The housing market looks set to be essentially at a standstill for the next few weeks at least. The Government has advised homebuyers and renters to delay moving as much as they can while the emergency measures are in place. The Government has further stated that no visitors are allowed to visit properties while “stay-at-home” measures are in force, including estate agents and surveyors as well as potential buyers. Meanwhile, some mortgage lenders have started to temporarily restrict or even decline new mortgages.
  • Extremely limited housing market activity over the coming weeks and months may not markedly affect house prices, which could well remain flat, assuming there is not a rapidly growing number of people forced to sell.
  • Once restrictions start to be lifted on people’s movements, housing market activity should progressively pick up. Even so, given the impact on the economy, the anticipated rise in unemployment and the impact on many people’s incomes (despite the Government’s supportive measures), the housing market looks unlikely to return to the levels seen at the start of 2020 for some time.

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

The Bank of England reported that mortgage approvals for house purchases rose markedly to 73,546 in February, taking them to the highest level since January 2014. This was up from 71,344 in January, 68,122 in December, 66,074 in November and a five-month low of 65,327 in October.

The data provides further evidence that the housing market was benefiting markedly early on in 2020 from increased confidence and reduced uncertainties following December's election. This was also evident in survey evidence. The February RICS survey reported that “New buyer enquiries, agreed sales and fresh listings all reportedly increased over the survey period, extending a run of positive readings going back to December”.

However, there were already signs in the surveys that coronavirus was starting to have some impact on housing market sentiment in February. The February RICS survey also observed that “although near term sales expectations remain positive, optimism has moderated somewhat, with anecdotal evidence suggesting concerns over the economic impact of the coronavirus are weighing on the outlook to some extent.” 

It is clear that housing market activity has been impacted from coronavirus during March, reflecting the mounting restrictions on people’s movements as well as the hit to confidence and economic activity. Hometrack reported on 26 March that demand for houses was down 40% over the past week and that “demand is set to fall further now the UK is moving into a 3+ week period of partial lockdown.

Consumer credit growth weakest since June 2014 in February

  • The Bank of England also reported that year-on-year unsecured consumer credit growth slowed to 5.7% in February, which was the weakest growth rate since June 2014.
  • Net unsecured consumer credit dipped to £0.9 billion in February from £1.1 billion in January and £1.3 billion in December. Net credit card borrowing was essentially flat.
  • The slowdown in unsecured consumer credit growth in February came amid evidence of soft consumer activity during the month, even though confidence was at an 18-month high according to GfK.
  • Consumer confidence is obviously being impacted and this is likely to encourage many people to cut back on their borrowing.
  • However, some people may be forced into borrowing more over the coming weeks and months as a result of losing their jobs or seeing their incomes sharply reduced due to the impact of coronavirus on the economy.

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 to 5.7% in February, which was the weakest level since June 2014. It was down from 6.0% in January and 6.1% in December. Although it had risen to 6.1% in December from 5.9% in November, unsecured consumer credit growth has been trending down from a peak of 10.9% in November 2016. The overall slowdown in consumer credit growth has clearly been significantly affected by markedly weaker private car sales as this has reduced demand for car finance.

Net unsecured consumer credit dipped to £877 million in February from £1.11 billion in January and £1.31 billion in December. It was down from the February 2019 level of £1.4 billion.

Net credit card borrowing was essentially flat in February (just £5 million), which was down from £181 million in January and £418 million in December.

The slowdown in unsecured consumer credit growth in February came amid evidence of soft consumer activity, which was partly affected by the very wet weather. Retail sales volumes fell 0.3% month-on-month in February and were only flat year-on-year (the weakest annual performance since March 2013). Additionally, private new car sales fell 7.4% year-on-year. This soft consumer performance came despite GfK reporting that consumer confidence rose to an 18-month high in February.