Press release

29 Mar 2021 London, GB

Mortgage approvals at six-month low in February but still relatively high – EY ITEM Club comments

Mortgage approvals for house purchases eased back for a third successive month in February to be at a six-month low of 87,669 (down from 97,350 in January), but this still represents the sixth highest level since September 2007.

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  • Mortgage approvals for house purchases eased back for a third successive month in February to be at a six-month low of 87,669 (down from 97,350 in January), but this still represents the sixth highest level since September 2007
  • February’s figures indicate that housing market activity was only slowly losing momentum prior to the supportive housing market measures being announced in the Budget
  • Recent buoyancy in housing market activity fuelled a firming in house prices during the latter months of 2020. There has been mixed evidence as to whether house prices were starting to come off the boil before the Budget
  • The EY ITEM Club expects house prices to be flat over 2021 – compared to an earlier expectation of a 5% contraction – but forecasts some quarter-on-quarter house price decreases when the current Stamp Duty benefit ends, unemployment rises and pent-up demand wanes
  • The strengthening of the housing market is likely to have been outsized relative to economic fundamentals, and the strength of prices will prove unsustainable
  • Nevertheless, the housing market is likely to benefit in the near-term from the Stamp Duty threshold extension, the low-deposit mortgage guarantee scheme, and the extension of the furlough scheme. The latter has led to less of an increase in unemployment than previously expected.

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

“The Bank of England reported that mortgage approvals for house purchases eased back for a third month running in February, and at an increased rate. Despite this, February still saw the sixth highest monthly total of mortgage approvals in more than 13 years.

“February mortgage approvals were at a six-month low of 87,669, down from 97,350 in January, 101,252 in December and 103,708 in November. November’s level had been the highest since August 2007. Mortgage approvals had previously risen for six successive months from a record low of 9,432 in May 2020.

“February’s still-elevated level of mortgage approvals indicate that, while housing market activity had come off its late-2020 highs, it was still pretty strong before the Chancellor announced supportive measures in March's Budget. The recent buoyancy in housing market activity was initially prompted by the release of pent-up demand following the easing of the first lockdown restrictions from May 2020. This buoyancy was then fuelled by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July 2020 initially through to 31 March 2021.

“Additionally, Nationwide has observed that activity may be being boosted by people reassessing their housing needs as a result of their experiences 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 polarization in demand for residential properties.”

“Recent survey evidence suggests housing market activity had lost some momentum. The February RICS residential monthly survey revealed that buyer enquiries fell for a 2nd month running after rising over the previous seven months. Meanwhile, new properties coming on to the market also declined for a 2nd successive month after rising through the second half of 2020. Newly agreed sales were flat in February after falling in January.”

House prices have strengthened but there are mixed signs as to whether they have started to come off the boil

Howard Archer observes: “The buoyancy in housing market activity has fuelled a strong firming in house prices, although there are mixed signs in the latest data as to whether things have started to come off the boil.  

“Nationwide reported house prices rebounded 0.7% month-on-month in February after dipping 0.2% in January, which had been the first monthly decline on that measure since last June. The year-on-year change in house prices rose back up to 6.9% in February after moderating to 6.4% in January from 7.3% in December – the highest since November 2014. Nevertheless, the three-month/three-month growth rate in house prices did moderate to 1.9% in February, which was the lowest since last September and was down from 2.3% in January, 3.0% in December and a peak of 3.7% in November.

“Halifax reported that house prices edged down 0.1% month-on-month in February, following a decline of 0.4% in January. These were the first monthly declines in house prices reported by Halifax since last May. The year-on-year gain in house prices moderated to a six-month low of 5.2% in February, down from 5.4% in January, 6.0% in December and 7.6% in November – the highest since June 2016.”

Outlook for the UK housing market 

Howard Archer comments: The EY ITEM Club now expects house prices to be flat over 2021 rather than contract by 5%. Nevertheless, house prices are still expected to see some quarter-on-quarter falls at the end of 2021 and start of 2022. The EY ITEM Club believes that the strengthening of the housing market has been outsized relative to the economic fundamentals, and the strength of prices will prove unsustainable.

“However, the housing market is likely to get near-term support from the Budget’s extension of the full Stamp Duty threshold increase from end-March to end-June, and then partially to end-September. The introduction of a mortgage guarantee scheme for people with low deposits is also likely to provide some support for the market, while the market will also be helped by unemployment rising less than previously forecast thanks to the extension of the furlough scheme to the end of September.

“Housing market activity and prices are expected to be pressurized over the final months of 2021 and the early months of 2022 as the Stamp Duty benefit ends, unemployment rises and there is a waning of pent-up demand. Housing market activity may also be affected from the latter months of 2021 onwards by growing expectations that interest rates could start to rise before too long.”

Further net repayments of unsecured consumer credit made in February as lockdown affects consumer activity – EY ITEM Club comments

  • The Bank of England reported a seventh successive net repayment in unsecured consumer credit in February as lockdown restricted consumer activity. February’s net repayment amounted to £1.2bn and followed a net repayment of £2.7bn in January
  • The year-on-year decline in unsecured consumer credit widened to a record high of -9.9% in February from -9.0% in January
  • It is likely that the overall recent rise in the household savings ratio has reduced the need of many households to borrow. The ratio reached a record high of 27.6% in Q2 2020 and was still as high as 16.9% in Q3
  • The seven months of net repayment of unsecured consumer credit – totalling £7.9bn over August 2020-February 2021 – has improved many households’ balance sheets, offering support to purchasing ability over the coming months. This fuels hope that consumers can play a leading role in the economy’s hoped-for decent recovery from the second quarter as restrictions on activity are progressively eased.

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

“The Bank of England reported that there was a seventh successive net repayment of unsecured consumer credit in February, with the impact of the latest lockdown continuing to be felt. February saw a net repayment of £1.2bn, following net repayments of £2.7bn in January and £923m in December.

“Positively, the seven months of net repayment of unsecured consumer credit – totalling £7.9bn from August 2020 onwards – has improved many households’ balance sheets. This will support purchasing ability over the coming months. Households’ purchasing power has already been helped by a very high household savings ratio, which was still as high as 16.9% in the third quarter of 2020. The ratio had reached 27.6% in the second quarter, according to the latest ONS data.

“The Bank of England also reported that the year-on-year decline in unsecured consumer credit widened to a new record high of -9.9% in February from -9.0% in January, -7.5% in December, -6.5% in November and -5.5% in October – this series began in 1994. The year-on-year change in unsecured consumer credit had turned negative in April 2020 for the first time since August 2012, 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 reduced demand for car finance.

“February’s figures are within scope of the third national lockdown, which is limiting consumer activity. Retail sales volumes were down 3.7% year-on-year in February while private new car sales declined 37.3% year-on-year in February.”