Mortgage Lending (Oct.) - Capital Economics
UK Housing

Mortgage Lending (Oct.)

UK Housing Market Data Response
Written by Gabriella Dickens

House purchase mortgage approvals fell sharply in October. Looking ahead, even if uncertainty were to lift at the start of next year, the housing market fundamentals do not support a pick-up in activity. We think growth in lending will stay below 3% y/y in 2020 and 2021.

Drop in mortgage approvals

  • House purchase mortgage approvals fell sharply in October. Looking ahead, even if uncertainty were to lift at the start of next year, the housing market fundamentals do not support a pick-up in activity. We think growth in lending will stay below 3% y/y in 2020 and 2021.
  • Data released from the Bank of England show that 64,602 mortgages were approved for house purchase in October, a decline of 1.8% m/m. (See Table 1.) That more than reversed the 0.4% m/m rise in September and chimed with the UK finance figure for approvals earlier in the week. What’s more, the annual rate fell to minus 3.3%, the fastest pace of decline since June 2018.
  • With ongoing political uncertainty, high house prices and a lack of homes for sale, it is not too surprising that mortgage approvals have fallen. Granted, increased competition among lenders has driven down mortgage interest rates since the turn of the year. But, with lenders continuing to uphold credit standards, that has done little to boost effective demand.
  • The fall in lending is consistent with the other housing market data. At minus 16% in October, the RICS new buyer enquiries balance suggests that demand has waned. And the fresh fall in the newly agreed sales balance points to a further fall in approvals over the next few months. (See Chart 1.)
  • Looking ahead, we expect to see a limited rise in approvals across our forecast. On the one hand, easing political uncertainty should bring both buyers and sellers back to the market, supporting demand for mortgages. But with house prices already very high relative to incomes and mortgage interest rates close to their floor, we doubt there is room for a surge in demand. So, while we expect approvals to grow at between 2% and 3% per year out to 2021, that’s below the 4% average seen since 2010.

Chart 1: Newly Agreed Sales & Mortgage Approvals

Source: Bank of England, RICS

Table 1: Bank of England Mortgage Lending – Key figures

2018

2019

Seasonally adjusted

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Value of loans approved £bn

21.7

21.4

21.2

22.5

22.0

21.6

21.9

21.7

21.9

22.1

22.3

22.4

22.2

%y/y

1.0

-3.5

1.7

5.9

5.6

4.6

4.2

-0.3

0.5

6.1

-0.7

3.0

2.5

Approvals for House purchases 000s

66.8

64.1

64.5

67.0

66.0

62.6

66.2

65.5

66.3

67.1

65.6

65.8

64.6

%m/m

1.7

-4.1

0.7

4.0

-1.5

-5.1

5.8

-1.0

1.2

1.2

-2.1

0.4

-1.8

%y/y

3.8

-1.8

4.1

-0.1

3.0

-1.7

3.9

0.7

1.0

3.3

-0.7

0.6

-3.3

Source: Bank of England

Gabriella Dickens, Assistant Economist, 020 3974 7421, gabriella.dickens@capitaleconomics.com