- Assessing the underlying health of the housing market remains challenging as stamp duty relief creates a distortion. When the temporary tax cut ends, the EY ITEM Club expects to see activity soften further and a modest correction to house prices.
- Though high repayments are weighing on net unsecured lending, gross lending flows are soft, and the recovery in lending could be further impeded in the short term by the recent fall in consumer confidence.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Secured lending data remains heavily influenced by the stamp duty holiday. July saw a rare net repayment of mortgage lending as a result of accelerated purchases to take advantage of the higher threshold for paying stamp duty. But net lending rebounded to £5.3bn in August, which is some way above the levels typically seen before the stamp duty cut was introduced.
“Overall, mortgage approvals continue to fall - they edged down from 75,100 in July to 74,500 in August. And with the stamp duty threshold set to revert to its normal level of £125,000 from October 1, the EY ITEM Club expects demand to continue to soften, although there could be another rise in net lending in September, as buyers again race to complete before the tax cut ends.
“Net unsecured lending recovered to £0.4bn in August, although this was still some way below pre-pandemic norms. Though this is partly down to high levels of repayments, it also reflects the fact that gross lending remains more than 9% down on pre-pandemic levels. The EY ITEM Club expects lending flows to steadily recover as consumer behaviour returns to pre-pandemic norms and, in particular, spending on social activities recovers. But the recent fall in consumer confidence – largely caused by growing concerns about how the economic situation and personal finances might evolve over the next year – is still likely to negatively affect progress in the near term.”