Press release

2 Jun 2020 London, GB

Mortgage approvals fell to record low of 15,848 in April as activity constrained by lockdown – EY ITEM Club comments on Bank of England data

The Bank of England reported that mortgage approvals for house purchases fell back to a record low of 15,848 in April. Approvals were down from 56,136 in March and a more than 6-year high of 73,660 in February.

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  • The Bank of England reported that mortgage approvals for house purchases fell to a record low of 15,848 in April from 56,136 in March
  • April’s level was by far the lowest since the series started in 1993. The previous low was 26,359 in November 2008. April’s figure was 57,818 approvals below the more than 6-year high of 73,660 that had been seen in February
  • April’s drop in mortgage approvals occurred as the housing market was essentially brought to a standstill from late-March through to mid-May by the coronavirus lockdown that was imposed in 23 March
  • Earlier, Nationwide reported house prices fell back 1.7% month-on-month in May; this was the first monthly drop on the Nationwide measure since last September and the largest since February 2009. The annual rate of increase more than halved to 1.8% in May from 3.7% in April (which had been the highest since February 2017)
  • Relief for the housing market in England has come from an easing of restrictions on 13 May
  • Survey evidence suggests that the mid-May easing of housing market restrictions in England caused an initial surge in buyer interest and activity. Nevertheless, there are uncertainties over how the housing market is likely to develop over the coming months
  • Despite the easing of restrictions on the housing market, the EY ITEM Club suspects that the upside to activity may be limited for some to come
  • Consequently, the EY ITEM Club suspects house prices will fall back around 5% over the next few months

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 a record low of 15,848 in April. Approvals were down from 56,136 in March and a more than 6-year high of 73,660 in February.

"April’s level of 15,848 in mortgage approvals for house purchases was by far the lowest since the series started in 1993. The previous low was 26,359 in November 2008. It was 57,818 below the more than 6-year high of 73,660 that had been seen in February.

"April’s drop occurred as the housing market was essentially brought to a standstill from late-March through to mid-May. The government advised homebuyers and renters to delay moving as much as they could while the emergency measures are in place. The rules introduced on 23 March meant that no visitors were allowed to visit properties while “stay-at-home” measures were fully in force, including estate agents and surveys as well as potential buyers.

"Prior to March, the housing market had enjoyed a markedly improved performance over the first couple of months of 2020 and at the end of 2019 as it benefitted from increased consumer confidence and reduced uncertainties following December's General Election."

Relief for housing market in England has come from Government easing restrictions on 13 May

Howard Archer continues: “Relief for the housing market in England has come from an easing of restrictions on 13 May, under which buyers and renters can once again view properties physically, arrange removals and move home. However, viewers must keep a two-metre distance from others, wear gloves where necessary, while also keeping high-risk owners out of the home during a viewing.

"Zoopla reported that there was an 88% rise in buyer enquiries after the housing market restrictions were lifted in England, although new sales agreed were up by a lesser 12%.”

Outlook for housing market

Howard Archer adds: “The EY ITEM Club suspects house prices could fall back 5% over the next few months.

"Despite the easing of restrictions on the housing market, the EY ITEM Club suspects that the upside to activity may be limited for some to come.

"Indeed, a survey by Zoopla found that 41% of those asked had put moving plans on hold owing to the uncertainty, loss of income, or future prospects for their finances.

"Additionally, Nationwide reported “our recent market research survey suggested that c12% of the population had put off moving as a result of the lockdown. Most viewed the current situation as a temporary pause in the market, with would-be buyers now planning to wait six months on average before looking to enter the market.”

"Housing market activity is likely to be limited in the near term at least by the impact of coronavirus on the economy and the fact that consumer fundamentals appear to have taken a downturn. Many people have already lost their jobs, despite the supportive Government measures, while others will be worried that they may still end up losing theirs once the furlough scheme ends. Additionally, many incomes have been affected. Consumer confidence is currently at or near record low levels and many people are likely to remain cautious for some time to come when making major spending decisions such as buying or moving house.

"The EY ITEM Club expects house prices to stabilise towards the end of the year and then start recovering gradually as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% until well into 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021."

 

Consumers repaid credit at a record rate and for a second successive month in April

  • The Bank of England also reported that there was a second successive and increased repayment of unsecured consumer credit in April, amounting to a record £7.4 billion. This followed a repayment of £3.8 billion in March
  • The year-on-year growth rate in unsecured consumer credit turned negative in April, standing at -0.4%. The growth rate had previously slowed to 3.6% in April, which was the weakest growth rate since June 2013
  • This provided further evidence of weakened consumer activity during April as the lockdown imposed on 23 March took effect. Retail sales volumes fell a record 18.1% month-on-month while new private car sales fell 98.7% year-on-year
  • Consumer confidence appears to be significantly affected by coronavirus, and this 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 due to losing their jobs or seeing their incomes reduced due to the impact of coronavirus on the economy. 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 also reported that there was a second successive and increased repayment of unsecured consumer credit in April, amounting to a record £7.4 billion. This followed a repayment of £3.8 billion in March.

"The Bank of England also reported that the year-on-year growth rate in unsecured consumer credit turned negative in April, standing at -0.4%. This was the first negative reading since August 2012. The growth rate had previously slowed to 3.6% in March (which had been the weakest growth rate since June 2013) from 5.7% 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 been significantly affected by markedly weaker private car sales as this has reduced demand for car finance.

"This ties in with weakened consumer activity during April as the full impact of the lockdown was felt. Retail sales volumes fell a record 18.1% month-on-month while new private car sales fell 98.7% year-on-year.

"Additionally, GfK reported that consumer confidence in April remained near the lowest levels since 2009."