- More evidence of consumer activity picking up as the Bank of England reported the smallest net rise in unsecured consumer credit for eight months this past April
- The year-on-year decline in unsecured consumer credit narrowed to -5.7% in April, from -8.8% in March and a record high of -10.0% in February
- Consumers showed increased willingness to spend in April, aligned to the opening up of the economy on 12 April. The year-on-year comparison was lifted by non-essential retailers and car showrooms being closed through April 2020. Retail sales volumes grew 9.2% month-on-month and were up 42.4% year-on-year in April
- Nevertheless, it is likely that the overall recent rise in the household savings ratio has reduced the need of many households to borrow
- The eight months of net repayment of unsecured consumer credit – totalling £8.2bn over September 2020-April 2021 – has improved many households’ balance sheets, offering support to purchasing ability over the coming months. This fuels the belief that consumers can play a leading role in the economy’s hoped-for recovery from the second quarter of 2021, as restrictions on activity are progressively eased. Prospects for consumer spending have been further boosted by the evidenced resilience of the labour market
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The Bank of England reported the smallest net repayment in unsecured consumer credit for eight months in April 2021, as the easing of lockdown restrictions on 12th of the month fuelled consumer spending.
“The net repayment totalled £377m in April, down from £388m in March and significantly down from £1.1bn in February and £2.8bn in January. Consumer activity was up, as households appeared keen to release pent-up demand, even though non-essential retailers, car showrooms and large parts of the hospitality sector remained closed during the early part of the month.
“The opening up of non-essential retailers and car showrooms from 12 April fuelled consumer activity, and retail sales volumes rose 9.2% month-on-month and 42.4% year-on-year in April, while there was a marked increase in private car sales.
“Positively, the eight months of net repayment of unsecured consumer credit – totalling £8.2bn over September 2020 – April 2021 – has improved many households’ balance sheets, which supports purchasing ability over the coming months. This is already being supported by currently the very high household savings ratio.
“The Bank of England also reported that the year-on-year decline in unsecured consumer credit narrowed to -5.7% in April from -8.8% in March and a record high of -10.0% in February (the monthly series began in 1994). This was likely influenced by the weakness in unsecured credit in April 2020, when the first lockdown was introduced. The year-on-year decline in unsecured consumer credit had previously climbed to February’s peak of 10.0% from -9.1% in January, -7.4% in December, -6.5% in November and -5.5% in October. The year-on-year change in unsecured consumer credit turned negative in April 2020 – the first time since August 2012, having trended down from a peak growth rate of 10.9% in November 2016.
“It is likely that recent highly elevated household savings ratios have reduced the need of many households to borrow.”
Mortgage approvals rose again in April as new supportive measures give housing market renewed impetus – EY ITEM Club comments
- Mortgage approvals for house purchases rose in April 2021 after dipping to an eight-month low in March, according to the Bank of England. The housing market slowed in early 2021 as the impetus from the Chancellor initially raising the Stamp Duty threshold through to the end of March waned
- However, new supportive measures for the housing market, announced by the Chancellor in the March Budget, gave the housing market a renewed boost. These measures include extending the Stamp Duty threshold and introducing a low-deposit mortgage scheme. The extension of the jobs furlough scheme should also help the housing market
- Consequently, the EY ITEM Club believes the housing market will see near-term vigour and a firming of prices
- However, the strength of the housing market is currently outsized relative to the economic fundamentals, and current price increases will ultimately prove unsustainable. The EY ITEM Club suspects house prices will lose momentum again later this year, and could well be flat year-on-year by mid-2022, with some quarters of falling prices
- Housing market activity and prices are expected to be increasingly pressurised over the final months of 2021 and the early months of 2022 as the Stamp Duty benefit ends, unemployment likely rises (albeit modestly) and pent-up demand wanes. There may well also be growing expectations that interest rates could begin to rise
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The Bank of England reported that mortgage approvals for house purchases rose in April 2021. This was the first increase since November 2020, and adds to the evidence that the housing market was boosted by the supportive measures contained in the early-March Budget.
“Mortgage approvals for house purchases rose back up to 86,921 in April 2021, having fallen to an eight-month low of 83,402 in March 2021, 87,938 in February 2021 and 103,400 in November 2020 – which had been the highest since August 2007. Mortgage approvals for house purchases had previously risen for six successive months through to November’s more than 13-year high, from a record low of 9,486 in May 2020.
“Meanwhile, the April RICS residential monthly survey revealed that buyer enquiries rose across all UK regions. Additionally, Rightmove reported a marked pick up in housing market activity in April 2021 along with higher asking prices.”
“The housing market slowed early in 2021 as the impetus from the Chancellor initially raising the Stamp Duty threshold through to the end of March waned. Housing market activity was initially buoyed over the latter months of 2020 by pent-up demand following the easing of restrictions that started in May 2020 after the first lockdown. This buoyancy was then fuelled by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July initially through to 31 March 2021.
“Additionally, Nationwide observed that behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of 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.”
Outlook for the UK housing market
Howard Archer adds: “Following the Chancellor's introduction of more supportive measures, the EY ITEM Club expects the housing market to show renewed vigour in the near term and a renewed firming of prices.
“The extension of the full Stamp Duty threshold to the end of June, will support the housing market in the near-term, as will the partial Stamp Duty extension to the end of September. In addition, the introduction of a mortgage guarantee scheme for people with low deposits is also likely to provide some support for the housing market. The housing market will also be helped by unemployment rising less than previously predicted due to the extension of the furlough scheme to the end of September 2021.
“House prices may also be lifted in the near term by demand outstripping supply. However, the EY ITEM Club is doubtful that this will be sustained for an extended period as the strengthening of the housing market has been outsized relative to current economic fundamentals.
“The EY ITEM Club suspects house prices will lose momentum again later on this year and could well be flat year-on-year by mid-2022 with some quarters of falling prices.
“Housing market activity and prices will likely become increasingly pressurised 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 hit from the latter months of 2021 by growing expectations that interest rates could start to rise before long.”