Press release

30 Nov 2020 London, GB

Mortgage approvals climbed to 13-year high in October – EY ITEM Club comments

The Bank of England reported that mortgage approvals for house purchases extended their recent buoyancy in October, climbing to 97,532 (the highest since August 2007) from 92,091 in September; they were up 51.1% on the 64,533 approvals in October 2019.

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  • The Bank of England reported that mortgage approvals for house purchases extended their recent buoyancy in October, climbing to 97,532 (the highest since August 2007) from 92,091 in September; they were up 51.1% on the 64,533 approvals in October 2019.
  • October’s 13-year high in mortgage approvals provides evidence that housing market activity is still benefitting from the release of pent-up demand following the easing of restrictions from mid-May. People seem to be re-assessing their housing needs and preferences following the first lockdown and Stamp Duty threshold increase.
  • The EY ITEM Club suspects the current gains in housing market activity and the strengthening in prices will prove unsustainable sooner rather than later due to challenging fundamentals for consumers – although in the immediate future, activity may still benefit from many potential buyers looking to make a move in time to complete before the Stamp Duty threshold increase ends.
  • The housing market is likely to come under mounting, near-term pressure as the economy is affected by continuing restrictions following the ending of the English lockdown on 2 December, while there may well still be a significant rise in unemployment despite the furlough scheme being extended until March. There is also likely to be a fading of pent-up demand.
  • The EY ITEM Club expects the housing market to be under pressure through H1 2021, although some temporary support in Q1 will likely come from buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March – although there is always the chance the threshold increase could be extended. An early widespread roll-out of a COVID-19 vaccine could also provide support to confidence, the economy and housing market activity.  
  • 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 H2 2021 allowing prices to stabilise and then start to firm as the UK’s economy establishes a firmer footing and the labour market comes off its lows. Very low borrowing costs should also help with the Bank of England unlikely 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 climbed to a new high of 97,532 in October, the most since August 2007. This was up from 92,091 in September, 85,704 in August, 67,433 in July, 40,357 in June and a record low of 9,355 in May. 

“October’s level of 97,532 was up 51.1% on the October 2019 level of 64,533.

“October’s rise to a more-than 13-year high in mortgage approvals provides evidence of ongoing buoyancy in housing market activity since the easing of restrictions that started in mid-May 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.

“Some observers have also noted that people may be reassessing their housing needs and preferences based on the experience of the last year.  In particular, it appears that an increasing number of people want a garden and also space to work at home. This is leading to some polarization in demand for residential properties.

“The monthly RICS residential monthly survey for October observed that its findings showed buyer enquiries, transaction volumes and new instructions to sell were all at elevated levels, albeit a little down on September. However, the survey showed concerns persist over longer-term outlook.”

Some signs that house prices are coming off the boil

Howard Archer observes: “The buoyancy in housing market activity has prompted a firming in house prices but there are some signs that house prices may be starting to come off the boil.

“Halifax reported house prices rose a much reduced 0.3% month-on-month in October, hinting that the recent robust monthly gains in house prices could be coming to an end. Prices had previously risen 1.5% month-on-month in September after gains of 1.7% in both August, and July. Nevertheless, the annual rise in house prices rose to 7.5% in October – the highest since June 2016 – from 7.3% in September, 5.2% in August, 3.8% in July and a seven-month low of 2.5% in June.

“Meanwhile, Nationwide reported that house prices rose 0.8% month-on-month in October after gains of 0.9% in September and 2.0% in August. The year-on-year change in house prices climbed to 5.8% in October (the highest since January 2015) from 5.0% in September, 3.7% in August and 1.5% in July.

“Additionally, Rightmove reported that asking prices for houses dipped 0.5% month-on-month in November after an increase of 1.1% in October.”

Outlook for the UK housing market 

Howard Archer adds: “The EY ITEM Club suspects elevated housing market activity and robust prices will prove unsustainable sooner rather than later – although, in the immediate future, activity may still benefit from many potential buyers looking to make a move in time to complete before the Stamp Duty benefit ends.

“The EY ITEM Club suspects that house prices could be around 5% lower than now by mid-2021. The housing market is likely to come under mounting near-term pressure amid rising COVID-19 cases and lockdown restrictions, while there is likely to be a significant rise in unemployment even though the furlough scheme has been extended until March. Meanwhile, earnings have been limited and are likely to remain so.

“There is also likely to be a fading of pent-up demand on housing market activity, while pandemic-related restrictions may also have some dampening impact on housing market activity as well as consumer confidence. Indeed, consumer confidence declined further in November to be at a six-month low, which may increase the caution of many people in making major spending decisions. 

“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 – although there is always the possibility that the Chancellor could extend it in next year’s Budget. An early widespread rolling out of a COVID-19 vaccine could also provide support to confidence, the economy and housing market activity.    

“The EY ITEM Club expects housing market activity to gradually improve over the second half of 2021 allowing prices to stabilise and then start to firm as the UK economy establishes a firmer footing and the labour market comes off its lows. Very low borrowing costs should also help with the Bank of England highly unlikely to lift interest rates from 0.10% during 2021.”

October saw further net repayment of unsecured consumer credit – EY ITEM Club comments

  • The Bank of England reported there was a second successive net repayment in net unsecured consumer credit in October, amounting to £590m – this was similar to the September repayment of £630m.
  • There had previously been modest rises in net unsecured consumer credit in August and July following four successive months of net repayments through to June.
  • The year-on-year decline in unsecured consumer credit widened to a record high of -5.6% in October from -4.6% in September.
  • The second successive net repayment in unsecured consumer credit in October occurred despite the overall pick-up in consumer activity since the downturn in Q2.
  • The fact that consumers were still making net repayments of unsecured credit in October suggests that they remain wary about borrowing in a still-uncertain environment. Consumer confidence fell in October amid rising COVID-19 cases and increased restrictions on activity, and it has since fallen further to a six-month low in November as the English lockdown took effect.
  • It is also likely that the rise in the household savings ratio to a record high of 29.1% in Q2 has reduced the need of many households to borrow.
  • Consumer activity in November will obviously have been significantly affected by the closure of non-essential retailers and car showrooms as well as the closure of most hospitality and leisure facilities.

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

“The Bank of England reported that there was a second successive net repayment in unsecured consumer credit in October; which amounted to £590m. This was similar to the net repayment of £630m in September. There had earlier been increases in net unsecured consumer credit of £253m in August and £932m in July, which were the first rises since February. 

“There were four months of net repayments in unsecured consumer credit over March-June, which was the first time this had happened since the second half of 2010. This had likely 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. There were net repayments of £561m in June, £4.4bn in May, a record £7.5bn in April and £3.1bn in March.

“On the positive side, the four months of net repayment of unsecured consumer credit totalling £15.6bn over March-June improved many households’ balance sheets, which supported purchasing ability.

“The Bank of England also reported that the year-on-year decline in unsecured consumer credit widened to a new record high of -5.6% in October (the monthly series began in 1994) from -4.6% in September, -4.0% in August and -3.7% in July. 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 as this has reduced demand for car finance.

“The second successive repayment in net unsecured consumer credit in October occurred despite decent healthy retail sales volumes growth of 1.2% month-on-month and 5.8% year-on-year over the month.  Volumes were also 6.7% above February’s level. Meanwhile, private new car sales edged up 0.4% year-on-year in October. However, spending on consumer services was affected in October as a result of the impact of COVID-19 restrictions on the hospitality sector.  

“The fact that consumers were still making net repayments of unsecured credit in October suggests that many remain wary about borrowing in a still-uncertain environment. Consumer confidence fell in October amid rising COVID-19 cases and increased restrictions on activity, and it has since fallen further to a six-month low in November as the English lockdown took effect. It is also likely that the rise in the household savings ratio to a record high of 29.1% in the second quarter has reduced the need of many households to borrow.

“Further, the Bank of England’s Credit Conditions Survey for the third quarter stated: “lenders reported that the availability of unsecured credit to households decreased in Q3 and was expected to decrease slightly over the next quarter. Credit scoring criteria for total unsecured credit applications tightened in Q3, and were expected to tighten further in Q4.””