Press release

1 May 2020 London, GB

Mortgage approvals fell to seven-year low in March with activity increasingly impacted by coronavirus

The Bank of England reported that mortgage approvals for house purchases fell back sharply to a seven-year low of 56,161 in March from a more than seven-year high of 73,674 in February.

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  • The Bank of England reported that mortgage approvals for house purchases fell back sharply to a seven-year low of 56,161 in March from a more than seven-year high of 73,674 in February.
  • March’s sharp drop in mortgage approvals occurred as the early-2020 upturn in the housing market was brought to a halt during the month by the impact of coronavirus on the economy, households and people’s movements. The housing market received a leg-up at the start of 2020 from increased optimism and reduced uncertainties following December’s decisive General Election result.
  • The fall back in mortgage approvals in March fuels the belief that house prices are headed lower over the coming months. This is despite Nationwide reporting that house prices unexpectedly rose 0.7% month-on-month in April, taking the year-on-year increase up to 3.7%, the highest since February 2017. Significantly though, the Nationwide reported that the impact of the coronavirus pandemic was not fully captured in its April data. This is because its index is constructed using mortgage approval data, and there is a lag between mortgage applications being submitted and approved.
  • We believe house prices could fall back 5% over the next few months. The expectation is that house prices will come under downward pressure from a sharp rise in unemployment and many people’s incomes being hit (despite the Government’s supportive measures) as well as sharply lower consumer confidence and increased caution.
  • Once restrictions start to be lifted on people’s movements, housing market activity should progressively pick up. Even so, given the impact of the Covid-19 on the economy, the anticipated rise in unemployment and the impact on many people’s incomes, the housing market looks unlikely to return to the levels seen at the start of 2020 for some time. Very low borrowing costs with the Bank of England taking interest rates down to 0.1% should provide some support.

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

The Bank of England reported that mortgage approvals for house purchases fell back to 56,161 in March (the lowest since March 2013) from a more than six-year high of 73,674 in February. Mortgage approvals for house purchases had previously risen to 73,674 in February (the most since January 2014) from 71,430 in January, 68,143 in December and a five-month low of 65,344 in October.

Prior to the coronavirus impact, the housing market was benefitting early on in 2020 from increased confidence and reduced uncertainties following December's decisive General Election result. 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.

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. Meanwhile, some mortgage lenders have started to temporarily restrict or even decline new mortgages.

 

Consumers repaid credit at a record rate in March

  • The Bank of England also reported that year-on-year unsecured consumer credit growth slowed significantly to just 3.7% in March, which was the weakest growth rate since June 2013.
  • There was a record repayment of £3.84 million in unsecured consumer credit in March.
  • This provides further evidence of weakened consumer activity during the month.
  • Consumer confidence is clearly being impacted by impacted by the coronavirus, its affect impact on the economy and every-day life, which is likely to encourage many people to cut back on their borrowing.
  • However, a growing number of people may be forced into borrowing more over the coming weeks and months as a result of losing their jobs or seeing their incomes reduced. Despite major government efforts to protect jobs and incomes, some people may still struggle to make ends meet.

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

The Bank of England reported that annual growth in unsecured consumer credit slowed significantly to just 3.7% in March, which was the weakest level since June 2013. It was down from 5.8% in February, 6.0% in January and 6.1% in December. Unsecured consumer credit growth has trended down from a peak of 10.9% in November 2016. The overall slowdown in consumer credit growth has clearly been affected by weaker private car sales as this has reduced demand for car finance.

There was a record repayment of £3.84 million in unsecured consumer credit in March. This ties in with weakened consumer activity during the month. Retail sales volumes fell a record 5.1% month-on-month while new private car sales fell 40.4% year-on-year.

Additionally, GfK reported that consumer confidence weakened substantially in the latter part of March. Specifically, the index slumped by 25 points to -34 from -9 with sharp deterioration in consumers’ expectations for the economy and for their personal finances. This took consumer confidence down to the lowest level since February 2009.