The increase in mortgage approvals for house purchase to over 100,000 for the first time since August 2007 underlines the remarkable strength of housing market activity. If moving house continues to be permitted by COVID-19 restrictions, housing transactions and prices will remain high in the coming months. But we expect a hangover in Q2 after the stamp duty holiday ends.
Surge in lending to pre-financial crisis levels will be fleeting
- The increase in mortgage approvals for house purchase to over 100,000 for the first time since August 2007 underlines the remarkable strength of housing market activity. If moving house continues to be permitted by COVID-19 restrictions, housing transactions and prices will remain high in the coming months. But we expect a hangover in Q2 after the stamp duty holiday ends.
- The surge in mortgage approvals since July means that mortgage lending probably exceeded 2019 levels in 2020 despite the housing market being closed during the first lockdown. The rise in mortgage approvals for house purchase from 97,532 in October to 104,969 in November marked a fresh 13-year high. (See Chart 1.) What’s more, the 715,300 approvals in the year to date was not far off the 722,000 granted in the first 11 months of 2019. Another bumper month for approvals in December as households take advantage of the stamp duty holiday should ensure approvals were higher in 2020 than 2019.
- Strong buyer demand has pushed up prices as well as sales. Competition between buyers pushed annual growth in the Nationwide house price index, released last week, up further from 6.5% in November to a six-year high of 7.3% in December.
- Note that the surge in approvals and prices has come despite banks tightening lending conditions. Quoted interest rates on high LTV lending ticked up a touch further in November. The interest rate on a 90% LTV 2-year fixed rate mortgage rose from 2.1% in January to 3.7% in November.
- Activity and price growth will remain high until the end of the stamp duty holiday. And prudent lending is a good reason to think that the boom in the housing market shouldn’t end in a price crash. But we do expect a slump in transactions after the stamp duty cut ends (see here), and house prices to slip back by about 5%, reversing much of their 2020 increase. (See here.)
Chart 1: Mortgage Approvals (000s)
Source: Bank of England, Capital Economics
Table 1: Bank of England Mortgage Lending – Key Figures
Value of loans approved £bn
Approvals for House purchases 000s
Source: Bank of England
Andrew Wishart, Property Economist, +44 (0)7427 682 411, email@example.com