- The recovery in unsecured lending is struggling to gain momentum, and high-frequency data points to another soft reading in July. But the EY ITEM Club expects lending flows to strengthen through Q2, particularly if the recent fall in COVID-19 cases continues.
- The stamp duty holiday has caused significant distortions in the mortgage market, boosting net lending in June but weakening approvals. The data is likely to remain choppy until the stamp duty holiday finishes at the end of September.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The latest household lending data from the Bank of England reported net consumer credit of £0.3bn in June, down a touch on the previous month, with a rise in repayments more than offsetting a small rise in gross lending. Recent high-frequency data on credit and debit card spending points to another soft reading in July, and with households’ saving deposits remaining above pre-pandemic levels, consumers are clearly some way from returning to normal spending patterns. But the 19 July removal of remaining COVID-19 restrictions should provide a spur to lending activity, particularly if this week’s decline in coronavirus cases continues, which would both reduce the numbers forced to self-isolate and boost the attractiveness of social consumption.
“The secured lending data was again subject to distortions caused by changes to stamp duty. With the threshold for paying stamp duty falling from £500,000 to £250,000 at the end of June, net lending rose to a record high of £17.9bn, as buyers rushed to complete before the deadline. But, conversely, mortgage approvals slipped to an 11-month low of 81,338, reflecting the notion that most buyers would have struggled to complete in time if their mortgage was not approved until June.
“With the stamp duty threshold due to return to its normal level of £125,000 from October, the data is likely to remain choppy in the near term. But reading through month-to-month volatility, the EY ITEM Club expects demand will soften and there will be a modest correction in prices, after the stamp duty-driven rises this year.”