Press release

1 Mar 2021 London, GB

Mortgage approvals eased back further from November’s 13-year high but remained elevated in January – EY ITEM Club comments

The Bank of England reported that mortgage approvals for house purchases eased back to 98,994 in January from 102,809 in December and 105,009 in November (the highest since August 2007). Nevertheless, January’s level was still the third highest for more than 13 years.

Press contact
Annabel Banks

Manager, Media Relations, Ernst & Young LLP

A highly experienced communications professional with cross-sector experience in media relations having worked with global brands spanning elite professional services firms to digital start-ups.

Related topics Growth COVID-19
  • The Bank of England reported that mortgage approvals for house purchases eased back to 98,994 in January from 102,809 in December and 105,009 in November (the highest since August 2007). Nevertheless, January’s level was still the third highest for more than 13 years
  • The ongoing elevated level of approvals indicates housing market activity is still gaining support from the release of pent-up demand which began when initial lockdown restrictions were eased from mid-May 2020, people re-assessing housing needs, and the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
  • Housing market activity fuelled a firming in house prices during the latter months of 2020. However, house prices now seem to be coming off the boil, according to the latest Nationwide and Halifax data
  • The EY ITEM Club believes that the strengthening of the housing market has been outsized relative to economic fundamentals and the strength of prices will prove unsustainable sooner rather than later – although activity and prices may get some near-term support if the Chancellor extends the Stamp Duty threshold increase in the budget
  • The strengthening of the housing market has occurred despite the contraction in the UK economy over 2020 and rising unemployment. The economy looks headed for clear contraction in Q1 2021
  • While the economy is expected to see a decent recovery start from Q2, unemployment is likely to rise further despite an expected extension of the furlough scheme. Pay growth is also likely to be limited over the coming months. Meanwhile, the impact of pent-up demand on housing market activity is also likely to fade
  • The EY ITEM Club suspects that house prices could end up declining around 3% over 2021. A fall of 5% had been forecast but this has been revised given the expected housing market measures in the upcoming Budget
  • 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. Very low borrowing costs should 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 eased back to a still-elevated 98,994 in January. This was down from 102,809 in December and 105,009 in November, which had been the highest level since August 2007. Mortgage approvals had previously risen for six successive months through to November’s more-than 13-year high from a record low of 9,370 in May 2020.

“Despite easing back further in January, mortgage approvals for house purchases were still at the third highest level in more than 13 years.

“Indeed, January’s data point to housing market activity continuing to benefit from the release of pent-up demand, which initially began when the first lockdown restrictions were eased in May 2020. This buoyancy was 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 pushing activity up, with people reassessing housing needs as a result of lockdown. 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.

“However, latest survey evidence suggests housing market activity may be starting to lose momentum, with the most recent lockdown adding to slowing pressures. The January RICS residential monthly survey reported a ‘generally weaker trend in activity’ and that the pandemic is ‘deterring would-be buyers and vendors.’ The survey revealed that buyer enquiries fell in January for the first time in eight months while new properties coming on to the market declined for the first time since May. There was also a fall in agreed sales in January.”

House prices have strengthened but there are tentative signs that they could be starting 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 signs in the latest data that prices are now coming off the boil.  

“Nationwide reported house prices dipped 0.3% month-on-month in January, which was the first monthly decline on that measure since last June and followed four successive 0.8-0.9% monthly increases through to December. The year-on-year change in house prices moderated to 6.4% in January from 7.3% in December, which had been the highest level since November 2014.

“Halifax reported that house prices fell 0.3% month-on-month in January. This was the first monthly fall in house prices reported by Halifax since last May and the largest since April. It followed a flat performance in December. Prior to this house prices had risen for five months running, including a gain of 1.0% in November. The year-on-year gain in house prices moderated to a five-month low of 5.4% in January from 6.0% in December and 7.6% in November, which had been the highest since June 2016.”

Outlook for the UK housing market 

Howard Archer adds: “The EY ITEM Club has frequently expressed belief that the current elevated housing market activity and robust prices will prove unsustainable sooner rather than later – and it does indeed look like the housing market may now be coming off the boil.

“The support to the housing market coming from the rise in the Stamp Duty threshold through to 31 March has recently started to wane. However, there are reports that the Chancellor will extend the raising of the Stamp Duty threshold to the end of June in the Budget. There have also been suggestions of a mortgage guarantee scheme to help people with small deposits get on to the property ladder.

“While an extension of the Stamp Duty threshold to the end of June would likely provide near-term support to housing market activity and prices, the EY ITEM Club still believes that the housing market is likely to come under mounting over the coming months. The EY ITEM Club believes that the recent strengthening in the housing market has been disproportionate given the economy's contraction over 2020 and rising unemployment. 

“After contracting in the first quarter, the economy looks set to see a decent recovery develop from the second quarter as restrictions on activity are gradually eased. Nevertheless, unemployment is likely to keep rising gradually despite an expected extension of the furlough scheme from the end of April in the Budget.

"Meanwhile, earnings growth looks likely to be limited and there is also likely to be a fading of the pent-up demand effect on housing market activity.

“Consequently, the EY ITEM Club suspects that house prices will fall by around 3% over 2021. This has been revised from an expected decline of 5% given the housing measures expected in the Budget.

“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. 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.”

January saw further, deeper net repayment of unsecured consumer credit as impact of latest lockdown felt – EY ITEM Club comments

  • The Bank of England reported there was a fifth successive – and deeper – net repayment in net unsecured consumer credit in January. January’s net repayment amounted to £2.4bn, following net repayments of £870m in December and £1.5bn in November
  • The year-on-year decline in unsecured consumer credit widened to a record high of -8.9% in January from -7.5% in December
  • The fifth successive net repayment in unsecured consumer credit in January occurred as consumer activity was markedly weaker amid the third lockdown
  • 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 reached a record high of 27.6% in Q2 2020 and was still as high as 16.9% in Q3
  • On the positive side, the five months of net repayment of unsecured consumer credit totalling £6.3bn over September 2020-January 2021 has improved many households’ balance sheets, which supports purchasing ability over the coming months; this fuels hope that consumers can play a leading role in the economy’s hoped-for recovery from Q2 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 fifth successive – and deeper – net repayment of unsecured consumer credit in January amid the latest lockdown. There was a ne £2.4bn repaid in January, following net repayments of £870m in December and £1.5bn in November. There had earlier been increases in net unsecured consumer credit of £1m in August and £1.4bn in July, which were the first rises since February. 

“Positively, the five months of net repayment of unsecured consumer credit – totalling £6.3bn over September 2020-January 2021 – has improved many households’ balance sheets, which supports purchasing ability over the coming months. This is already being helped by a very high household savings ratio which was still as high as 16.9% in the third quarter of 2020 after reaching 27.6% in the second quarter, according to 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 -8.9% in January from -7.5% in December, -6.5% in November and -5.5% in October. The year-on-year change in unsecured consumer credit had turned negative for the first time since August 2012 in April 2020, 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 reduced demand for car finance.

“January’s net repayment occurred as consumer activity was markedly weaker amid the third lockdown. Retail sales volumes fell 8.2% month-on-month in January while private new car sales fell 38.5% year-on-year.”