Mortgage Lending (Feb.) - Capital Economics
UK Housing

Mortgage Lending (Feb.)

UK Housing Market Data Response
Written by Andrew Wishart

The rush to beat the original stamp duty holiday deadline in March pushed mortgage advances up to their highest level since 2016 in February. And while approvals for house purchase did start to cool, the extension of the stamp duty holiday and the renewed strength of the survey data suggest that lending will remain high for most of this year.

Stamp duty deadline pushes lending to a five-year high

  • The rush to beat the original stamp duty holiday deadline in March pushed mortgage advances up to their highest level since 2016 in February. And while approvals for house purchase did start to cool, the extension of the stamp duty holiday and the renewed strength of the survey data suggest that lending will remain high for most of this year.
  • Net mortgage lending rose from £5.3bn in January to £6.2bn as transactions surged ahead of the original stamp duty holiday deadline. That amount of lending was on a par with pre-financial crisis levels, only topped by the spike in 2016 before the second home stamp duty surcharge was introduced. (See Chart 1.)
  • Admittedly, the second consecutive decline in mortgage approvals for house purchase from 97,350 to 87,669 did suggest that the original stamp duty holiday deadline and the January lockdown were a drag on housing market activity. But approvals were still up 19.5% y/y. (See Table 1.) And the extension of the stamp duty holiday and a renewed pick up in buyer demand suggests that home sales and mortgage lending will remain high for most of the year. (See here.)
  • Meanwhile, quoted interest rates continued to fall despite the rise in bond yields that began in February. There isn’t a close relationship between long rates and mortgage rates in the UK, so despite recent moves in bond markets, we think that mortgage rates are likely to continue to edge downwards as the higher risk premium that banks added to mortgage rates during the pandemic is unwound.
  • Overall, while mortgage approvals edged down in February, we suspect that mortgage lending will remain high this year given the extension to the stamp duty holiday and the strength of the survey data. As a result, mortgage approvals for house purchase are likely to reach their highest level since 2007 this year.

Chart 1: Mortgage Approvals (Not Seasonally Adjusted, 000s)

Source: Bank of England, Capital Economics

Table 1: Bank of England Mortgage Lending – Key Figures

2020

2021

Seasonally adjusted

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Value of loans approved £bn

25.2

20.0

9.4

7.2

15.9

21.9

25.0

26.6

27.5

29.4

29.1

28.0

26.2

%y/y

15.9

-7.9

-57.2

-67.2

-28.6

-3.6

12.5

19.7

24.7

31.0

26.2

16.0

4.0

Approvals for House purchases 000s

73.4

56.9

16.1

9.4

40.7

67.8

86.1

92.0

97.3

103.7

101.3

97.4

87.7

%m/m

5.2

-22.4

-71.7

-41.4

331.3

66.7

26.9

6.9

5.7

6.6

-2.4

-3.9

-9.9

%y/y

12.5

-9.1

-75.7

-85.7

-39.4

-0.5

29.4

39.4

51.4

61.1

53.0

39.5

19.5

Source: Bank of England


Andrew Wishart, Property Economist, +44 (0)7427 682 411, andrew.wishart@capitaleconomics.com