- Distortions caused by the stamp duty holiday continue to cause significant volatility in secured lending data. When the temporary tax cut ends, the EY ITEM Club expects to see activity soften further and a modest correction in house prices.
- The pickup in consumer credit has been limited, with gross unsecured lending still 10% down on pre-pandemic levels. Lending flows are expected to steadily improve as confidence becomes firmer and consumers begin to spend capital accumulated during the pandemic.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Secured lending data has been volatile this year due to distortions caused by the stamp duty holiday, and this pattern continued in July. Net mortgage lending had risen to a record £17.7bn in June, as buyers raced to complete purchases before the threshold for paying stamp duty fell from £500,000 to £250,000 at the end of that month. But with so many transactions being brought forward, homeowners repaid a net £1.4bn of mortgage credit in July.
“Mortgage approvals continued to fall back, reaching a 12-month low of 75,152 in July. We may see another increase in activity in the next couple of months, as buyers line up transactions before the stamp duty threshold returns to its normal level of £125,000 from October. But once the stamp duty holiday has ended, the EY ITEM Club expects demand to soften and that there will be a modest correction in prices.
“The recovery in unsecured lending remains limited. After four months in positive territory, net lending slipped back to zero in July. Higher levels of repayments are part of the story, but gross lending remains some 10% down on pre-pandemic levels. However, the EY ITEM Club remains optimistic that lending flows will steadily improve in the second half of 2021, as confidence firms and consumers begin to spend some of the large pile of ‘excess’ savings they have accumulated through the pandemic.”