Mortgage Lending (Jan.) - Capital Economics
UK Housing

Mortgage Lending (Jan.)

UK Housing Market Data Response
Written by Andrew Wishart

Mortgage approvals remained at very high levels in January as buyers hoped to take advantage of the stamp duty holiday. But there are growing signs that demand may be resilient to the end of the tax break.

Lending remained strong as buyers hoped to elude stamp duty

  • Mortgage approvals remained at very high levels in January as buyers hoped to take advantage of the stamp duty holiday. But there are growing signs that demand may be resilient to the end of the tax break.
  • The slight fall in mortgage approvals for house purchase from 102,809 to 98,994 in January still left them well above their pre-COVID-19 level of around 68,000 a month. (See Chart 1.) The high level of approvals probably still reflects the rush to move during the stamp duty holiday.
  • That said, delays in conveyancing meant it was uncertain whether agreeing a sale in January would exchange before the end of the Stamp Duty Holiday (if it weren’t extended). And Rightmove report strong buyer interest in February when it would be too late for prospective buyers to benefit from the original stamp duty holiday. (See here.) So the tax break doesn’t appear to be the only factor behind strong demand.
  • Meanwhile, the average rate on new mortgage lending eased back from 1.91% to 1.85% even though interest rates on high LTV products remained high, consistent with households using high savings to upsize their deposits. The average quoted rate on a 90% LTV mortgage eased slightly, but at 3.6% in January it remained well above the 1.9% rate before the pandemic.
  • A new “Help to Buy: Mortgage Guarantee Scheme”, in which the government guarantees the “top slice” of mortgages against a fall in house prices would probably speed up the reduction in mortgage rates on high LTV loans towards pre-pandemic levels, and lead lenders to start offering 95% LTV loans again.
  • While we still expect a difficult patch for the housing market towards the end of the year as unemployment will continue to rise, an extension to the stamp duty holiday and a mortgage guarantee scheme would make a dip in house prices this year less likely.

Chart 1: Mortgage Approvals (000s per Month)

Source: Bank of England, Capital Economics

Table 1: Bank of England Mortgage Lending – Key Figures

 

2020

           

2021

Seasonally adjusted

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Value of loans approved £bn

24.3

25.2

19.8

9.4

7.2

15.8

21.8

25.1

26.7

27.6

29.7

29.2

28.3

%y/y

10.8

16.0

-8.2

-57.2

-67.3

-28.7

-3.6

12.6

19.8

24.8

31.1

26.2

16.2

Approvals for House purchases 000s

70.8

73.1

56.1

15.9

9.3

40.4

67.6

86.2

92.6

98.3

105.0

102.8

99.0

%m/m

5.5

3.4

-23.3

-71.7

-41.2

332.0

67.3

27.5

7.5

6.2

6.7

-2.1

-3.7

%y/y

7.2

12.4

-9.5

-75.8

-85.7

-39.5

-0.5

29.5

39.5

51.4

61.2

53.2

39.9

Source: Bank of England


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