Press release

29 Sep 2020 London, GB

Mortgage approvals increase to near 13-year high in August from May’s record lows – EY ITEM Club comments

The Bank of England reported that mortgage approvals for house purchases increased to 84,700 in August – the highest level since October 2007

Press contact

Nick Cosgrove

UK&I Senior Media Relations Manager, Ernst & Young LLP

Professional services corporate communications specialist. Reluctant dog owner and long-suffering Watford fan.

Related topics Growth
  • The Bank of England reported that mortgage approvals for house purchases increased to 84,700 in August – the highest level since October 2007
  • August’s mortgage approvals provide evidence of the marked pick-up in housing market activity that has occurred since COVID-19 restrictions started to be eased in mid-May. This buoyancy has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
  • However, the EY ITEM Club suspects the current gains in housing market activity and firming of prices will become unsustainable sooner rather than later due to challenging fundamentals for consumers
  • The EY ITEM Club suspects that the housing market will come under increasing pressure over the final months of 2020 and start of 2021 when there is likely to be a significant rise in unemployment. There is also likely to be a fading of the pent-up demand effect. Some temporary support may come in Q1 2021 with buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March – although there is always the possibility that the Chancellor could extend it in next year’s Budget
  • The EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021
  • The EY ITEM Club expects housing market activity to gradually improve over the second half of 2021, allowing prices to stabilize and then start to firm as unemployment drops and the UK’s economic recovery continues. Very low borrowing costs should also help – the EY ITEM Club does not expect the Bank of England to lift interest rates from 0.10% during 2021

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

“The Bank of England reported that mortgage approvals for house purchases picked up for a third month running in August to be at a near 13-year high of 84,700. This was up from 66,281 in July, 39,902 in June and a record low of 9,285 in May. Mortgage approvals for house purchases had previously fallen to May’s record low, and from 15,867 in April and a more than six-year high of 73,681 in February.

“August’s further rise in mortgage approvals provides ongoing hard evidence of the marked short-term pick-up in housing market activity since the easing of restrictions that started in mid-May, which released pent-up demand. This buoyancy has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021.

“The monthly RICS residential monthly survey for August observed that its findings “continue to portray strong momentum behind the sales market at present, even if the longer-term view remains more cautious.” In August, the survey reported a strong increase in buyer enquiries, agreed sales and new instructions to sell.”

Outlook for the UK housing market

Howard Archer adds: “The EY ITEM Club suspects the current pick-up in activity and firming of house prices will prove unsustainable in the short term, with the upside for the housing market being limited by challenging fundamentals for consumers. The EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021.

“Many people have already lost their jobs, despite the supportive Government measures, while others are concerned about possible redundancy once the furlough scheme ends. Separately, many incomes have been affected. Consumer confidence is currently still low compared to long-term norms 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 suspects that the housing market is likely to come under pressure over the final months of 2020 when there is likely to be a marked rise in unemployment following the close of the furlough scheme in October. While the Chancellor’s Job Support Scheme announced in late-September should have some degree of limiting impact on the increase in unemployment in late-2020 and early-2021, a significant rise in unemployment still looks more likely than not. This will not only adversely affect the fundamentals for house buyers, but also likely fuel caution on committing to buying a house. There is also likely to be a fading of the pent-up demand effect on activity.

“The EY ITEM Club expects the housing market to remain under pressure over the early months of 2021, although some temporary support in the first quarter will likely come from buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March. However, there is always the possibility that the Chancellor could extend it in next year’s Budget.

“The EY ITEM Club expects housing market activity to gradually improve over the second half of 2021, allowing prices to stabilize and then start to firm as the labour market improves and the UK’s economic recovery continues. Very low borrowing costs should also help the housing market with the Bank of England unlikely to lift interest rates from 0.10% during 2021.”

 

August saw second successive rise in unsecured consumer credit – EY ITEM Club comments

  • The Bank of England reported there was an increase of £0.3 billion in net unsecured consumer credit in August; this was a second successive monthly increase following four successive months of net repayments through to June
  • The year-on-year decline in unsecured consumer credit became slightly more negative in August, standing at -3.9%, compared to -3.6% in July and -3.7% in June
  • This second successive rise in net unsecured borrowing by consumers in August ties in with a recent appreciable pick-up in consumer activity as lockdown restrictions were eased and some retailers opened again The retail, car showroom and consumer services sectors opened up in June and July, and spending in restaurants was boosted in August by the ‘Eat Out to Help Out’ scheme
  • However, the fact that unsecured consumer credit rose only modestly in August suggests that consumers were still cautious about borrowing
  • The four months of net repayments of unsecured consumer credit through to June were likely related to a lack of opportunity to spend due to the restrictions on activity, as well as heightened consumer caution amid COVID-19
  • On the positive side, the four months of net repayment of unsecured consumer credit, totalling £15.9 billion over March-June, has improved many households’ balance sheets, which will improve some future consumers’ purchasing ability

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

“The Bank of England reported that there was an increase of £0.3 billion in unsecured consumer credit in August. This followed an increase of £1.1 billion in July, which had been the first rise since February.

“There had previously been four months of net repayments in unsecured consumer credit, although this had slowed to £382 million in June from £4.4 billion in May and a record £7.4 billion in April. Net repayment in March was £3.7 billion. March-June marked the first time that there had been four successive months of net repayments of unsecured consumer credit since the second half of 2010.

“The Bank of England also reported that the year-on-year decline in unsecured consumer credit rose back up to -3.9% in August after dipping to -3.6% in July from -3.7% in June. The year-on-year change in unsecured consumer credit had turned negative for the first time since August 2012 in April, having trended down from a peak growth rate of 10.9% in November 2016. The overall slowdown in consumer credit growth had originally been significantly affected by weaker private car sales, which had reduced the demand for car finance.

“The four months of net repayments of unsecured consumer credit through to June had been the consequence of a lack of opportunity to spend due to the restrictions on activity, as well as heightened consumer caution amid COVID-19’s impact on the economy.

“However, there has been a clear pick-up in consumer activity since June as restrictions were eased. Car showrooms were allowed to open at the start of June, and non-essential retailers were allowed to open from mid-June. Additionally, restrictions on hospitality and consumer services sectors were reduced from early-July.

“Consequently, retail sales volumes rose 0.8% month-on-month in August after strong gains in July and June, resulting in a year-on-year increase of 2.8%. Furthermore, retail sales volumes in August were 4.0% above their February level – before the sector was affected by the pandemic. Spending on consumer services was buoyant in August, aided by the ‘Eat Out to Help Out’ scheme.

“Meanwhile, consumer confidence has come off its May lows, although it remains well below the levels seen in February. Indeed, the fact that net unsecured credit rose only modestly in August points to caution over borrowing among consumers.

“On the positive side, the four months of net repayment of unsecured consumer totalling £15.9 billion over March-June has improved many households’ balance sheets which will improve some consumers’ purchasing ability.”