Press release

1 Mar 2023 London, GB

Stretched affordability continues to weigh on housing activity – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to the EY ITEM Club, provides analysis on the latest mortgage approvals and consumer credit news.

Related topics Growth
  • Though quoted mortgage interest rates fell in January, this offered scant support to mortgage approvals, which, excluding the pandemic period, fell to their lowest level in 14 years. With house prices still high on most affordability measures, the EY ITEM Club thinks prices will fall further, and activity is likely to remain subdued in the near-term.
  • Data on unsecured lending and bank deposits was a little more favourable to consumer spending in January. However, gross unsecured lending is still 6% lower than last May when adjusted for inflation, and it’s still debatable whether higher borrowing and lower saving will play a key role in the consumer recovery.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “Mortgage approvals continued to decline in January, falling to 39,637. Apart from during the pandemic, this was the lowest level in 14 years. The only positive was that December's outturn was revised up significantly, from the initial estimate of 35,612 to a still-low 40,540. The impact of low approvals at the end of last year was also seen in net mortgage lending cooling to just £2.5bn in January. Stretched affordability is weighing heavily on demand and is likely contributing to a correction in prices. Though quoted mortgage rates have fallen back since the end of last year, property values still look very high on most measures of affordability. The EY ITEM Club thinks prices still have some way to fall before stabilising, meaning housing activity is likely to remain soft for some time to come.

“Data on unsecured lending and deposits was mixed. On the one hand, net lending rose to £1.6bn in January from £0.8bn in December, largely due to higher gross lending.  The £3.5bn increase in household deposits, meanwhile, was a little lower than the pre-pandemic norm. However, on the other hand, when adjusted for inflation, gross lending is still 6% below its May 2022 peak. At best, higher borrowing and lower saving is offering marginal support to household spending.

“Signs that consumer sentiment may be reviving could boost consumers’ appetite to dissave, although some homeowners may choose to save more in an attempt to better absorb impending higher mortgage costs. Therefore, a recovery in consumer spending is likely to rely more on lower inflation allowing a rebound in household spending power from late 2023, than on households saving less and borrowing more.”