Press release

4 Jan 2023 London, GB

Housing market downturn continues to deepen – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to EY ITEM Club, provides comments on the latest public finance news.

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  • Mortgage approvals fell in November, despite the more stable financial market backdrop. Stretched affordability is driving a correction which is likely to keep transactions low and the EY ITEM Club expects that this will result in a double-digit fall in house prices.
  • A decline in gross unsecured lending and another significant increase in household deposits suggests that consumers remain unable or unwilling to push against the pressures of falling real incomes by borrowing more or saving less. Whether consumers change that approach will be key to the outlook for consumer spending.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The financial market turmoil that followed late-September's mini-Budget had largely disappeared by the start of November. However, the more stable financial market backdrop offered no support to the housing market, with mortgage approvals falling to 46,075 in November, from 57,875 in October. Excluding the pandemic periods, this was the lowest level since April 2011.

“Net mortgage lending of £4.4bn was up on October's level, but this was a legacy of transactions set in train earlier. The EY ITEM Club expects that both lending flows and residential transactions are likely to fall back in Q1 2023. Indeed, though the financial market backdrop has improved, it has only reduced the extent to which house price valuations, based on mortgage affordability, are stretched, so the EY ITEM Club expects that a double-digit correction in prices remains likely.

“Data on unsecured lending and household deposits continue to give the impression that consumers have limited appetite to push against the pressures of falling real incomes by borrowing more or saving less. Though net unsecured lending rose to £1.5bn in November, from £0.7bn in October, this was entirely due to a notable drop in repayments, with gross lending falling back. And households added £5.7bn to their stock of deposits in November, well above the pre-pandemic norm of £4.2bn a month.

“On balance, the EY ITEM Club still thinks that consumer savings will come to at least the partial aid of the economy. The financial turmoil from late last year may have encouraged greater precautionary saving, but conditions have calmed on those fronts. Survey evidence collected by the Bank of England just before the mini-Budget found that higher-income households are reducing their monthly savings to cut back spending by less. And other major economies, notably the US, have seen excess savings drawn down to a significant extent.”