Press release

1 Feb 2021 London, GB

December mortgage approvals still elevated but down on November’s 13-year high figures – EY ITEM Club comments

The Bank of England reported that mortgage approvals for house purchases edged back slightly to 103,381 in December from 105,324 in November (the highest since August 2007). Nevertheless, December’s level was still the second highest for more than 13 years.

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  • The Bank of England reported that mortgage approvals for house purchases edged back slightly to 103,381 in December from 105,324 in November (the highest since August 2007). Nevertheless, December’s level was still the second highest for more than 13 years
  • December’s high mortgage approvals indicates that housing market activity is still benefitting from the release of May 2020’s pent-up demand following restrictions easing and the Stamp Duty threshold rising in July 2020
  • This buoyancy in housing market activity fuelled a marked firming in house prices during the latter months of 2020
  • The EY ITEM Club predicts the current housing market activity and strength of prices is not sustainable in the long term, but will hold up in the very near term with buyers completing purchases ahead of the Stamp Duty threshold increase deadline on 31 March
  • The likely significant rise in unemployment despite the furlough scheme being extended until April, will also impact housing market activity, and the effect of pent-up demand is likely to fade
  • The EY ITEM Club suspects that house prices could decrease by around 5% by the end of 2021.

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

“The Bank of England reported that mortgage approvals for house purchases remained high in December at 103,381, after rising for six successive months to 105,324 in November. This was up from 98,195 in October, 92,402 in September, 86,174 in August and a record low of 9,348 in May.

“Despite edging back from November’s peak level in December, mortgage approvals for house purchases were still at the second highest level in more than 13 years.

“Indeed, December’s data points to continued buoyancy in housing market activity, which has been ongoing since the easing of restrictions in mid-May 2020 that 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 space to work at home. This is leading to some polarisation in demand for residential properties.

“However, there are some signs in the most recent surveys that housing market activity may be starting to slow. In particular, the December RICS residential monthly survey observed that “results continue to point to rising activity across the market, even if the pace of growth has softened noticeably compared with earlier in H2. That said, sales expectations have retreated according to the most recent feedback.” The survey’s buyer enquiries balance fell to a seven-month low of +15% in December from +26% in November. The agreed sales balance fell to +18% in December from +24% previously. Growth in new properties coming on to the market also slowed in December.”

House prices have strengthened but could be starting to come off the boil

Howard Archer continues: “The buoyancy in housing market activity has fuelled a strong firming in house prices, although there were hints in the Halifax data that they could be starting to come off the boil.

“Specifically, the Halifax reported that house prices rose a much reduced 0.2% month-on-month in December; this was a sixth successive monthly increase but the smallest since prices started rising in July and down from an increase of 1.0% in November. The year-on-year gain in house prices moderated to a four-month low of 6.0% in December after rising to 7.6% in November – the highest since June 2016 – from, 7.5% in October, 7.3% in September, 5.2% in August and a seven-month low of 2.5% in June.

“However, Nationwide reported house prices rose a still robust 0.8% month-on-month in December, which was a fourth successive month of 0.8-0.9% monthly increases. The year-on-year change in house prices climbed to 7.3% in December – the highest since November 2014 – from 6.5% in November, and 5.8% in October.”