Press release

4 Jan 2021 London, GB

Mortgage approvals reach 13-year high in November – EY ITEM Club comments

Mortgage approvals reach 13-year high in November – EY ITEM Club comments

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Related topics Growth COVID-19
  •  The Bank of England reported that mortgage approvals for house purchases reached a 13-year high of 104,969 in November, the highest since August 2007
  • This shows that housing market activity is still benefitting from the release of pent-up demand following the easing of earlier restrictions from mid-May, people re-assessing their housing requirements following the first lockdown and the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
  • This buoyancy in housing market activity has fuelled a marked firming in house prices in recent months
  • However, the EY ITEM Club suspects the current robustness of housing market activity and the strength of prices will prove unsustainable sooner rather than later – although it will likely hold up in Q1 2021 from buyers looking to take final advantage of the Stamp Duty threshold increase before it ends on 31 March. There is always the possibility that the Chancellor could extend the increase in the March Budget
  • The housing market is likely to come under mounting pressure in the near term as the economy continues to be affected by COVID-19 restrictions in most areas. In addition, there may still be a significant rise in unemployment, despite the furlough scheme being extended until April. The effect of pent-up demand on housing market activity is also likely to fade
  • The EY ITEM Club suspects that house prices could decrease by around 5% by the end of 2021
  • The EY ITEM Club expects housing market activity to gradually improve late on in 2021 allowing prices to stabilise as the UK’s economy establishes a sustained firmer footing and the labour market comes off its lows, supported by the roll-out of the COVID-19 vaccine. Very low borrowing costs should also help, with the Bank of England unlikely to lift interest rates from 0.10% during 2021 and for some time thereafter

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

“The Bank of England reported that mortgage approvals for house purchases rose for a sixth month running to reach a new high of 104,969 in November – the highest since August 2007. This was up from 98,338 in October, 92,594 in September, 86,174 in August and a record low of 9,348 in May.

“November’s more-than 13-year high in mortgage approvals shows ongoing buoyancy in housing market activity that has occurred since the easing of earlier restrictions from mid-May onwards 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.

“Additionally, Nationwide has observed that “behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.” 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 polarisation in demand for residential properties.

“The RICS residential monthly survey for November observed that its results “remain consistent with a solid trend in sales activity across the market, even if the sharp growth in buyer demand reported over recent months appears to losing a bit of steam”. The survey also observed that “near-term expectations for both prices and transactions point to a more moderate picture emerging over the coming months.””

House prices currently still robust

Howard Archer continues: “The buoyancy in housing market activity has fuelled a firming in house prices. Nationwide reported house prices rose 0.8% month-on-month in December which lifted the year-on-year increase to 7.3%, the highest since November 2014. Meanwhile, latest data from Halifax show house prices rose 1.2% month-on-month in November which took the annual rise to 7.6%, the highest since June 2016.”

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 threshold increase ends. An early widespread roll-out of a COVID-19 vaccine could also support confidence, the economy and housing market activity.

“There are signs in some of the latest data and surveys that house prices may now be coming off the boil.

“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. Meanwhile, earnings have been limited and are likely to remain so. 

“There is also likely to be a fading of the pent-up demand effect 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 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.”

November saw further, deeper net repayment of unsecured consumer credit – EY ITEM Club comments 

  • The Bank of England reported there was a third successive – and deeper – net repayment in net unsecured consumer credit in November, amounting to £1.5bn. This followed net repayments of £698m in October and £826m in September
  • The year-on-year decline in unsecured consumer credit widened to a record high of -6.7% in November from -5.5% in October
  • November’s figures occurred as consumer activity was affected by the lockdown in England and other tight restrictive measures which weighed on consumer services activity, particularly hospitality and leisure
  • Continued net repayments of unsecured credit suggest consumers remained wary about borrowing in a still uncertain environment. Consumer confidence reached a six-month low in November amid rising COVID-19 cases and increased restrictions on activity
  • While consumer confidence rebounded in the first half of December as it was lifted by positive vaccine developments, it is likely to come under near-term pressure from the renewed tightening of restrictions, particularly in Tier 4 areas
  • It is also likely that the overall recent rise in the household savings ratio has reduced the need of many households to borrow. The ratio rose to a record high of 27.6% in Q2 and was still as high as 16.9% in Q3 

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

“The Bank of England reported that there was a third successive net repayment in unsecured consumer credit in November. Net repayments amounted to £1.5bn billion, up from £698m in October and £826m in September. There had earlier been increases in net unsecured consumer credit of £61m in August and £1.3bn in July, which were the first rises since February. 

“There were four months of net repayments in unsecured consumer credit over March-June, the first time this had happened since the second half of 2010. This is likely to have 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 £654m 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 -6.7% in November (the monthly series began in 1994) from -5.5% in October, -4.7% 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.

“November’s figures occurred as consumer activity was significantly limited by the lockdown in England (which included closing non-essential retailers) and other tight restrictions including the closure of most hospitality and many leisure businesses. Retail sales volumes fell 3.8% month-on-month in November while private new car sales dropped 33.2% year-on-year.

“The fact that November marked a third successive month of consumers making net repayments of unsecured credit suggests that they may remain wary about borrowing in a still uncertain environment. It is also likely that the elevated household savings ratio in the second (a record high of 27.6%) and third (16.9%) quarters has reduced the need of many households to borrow.”