UK Finance Mortgage Lending (Dec.) - Capital Economics
UK Housing

UK Finance Mortgage Lending (Dec.)

UK Housing Market Data Response
Written by Gabriella Dickens

The UK Finance mortgage approvals data provides further tentative evidence that demand picked up at the end of 2019. But with Brexit-related uncertainty set to intensify later this year and with the housing fundamentals unsupportive, we don’t expect any meaningful rise in mortgage lending anytime soon.

Mortgage approvals rise in December

  • The UK Finance mortgage approvals data provides further tentative evidence that demand picked up at the end of 2019. But with Brexit-related uncertainty set to intensify later this year and with the housing fundamentals unsupportive, we don’t expect any meaningful rise in mortgage lending anytime soon.
  • According to UK Finance, mortgage approvals for house purchase among the high-street banks rose from 44,058 in November to 46,815 in December, or an increase of 2.8% m/m. What’s more, the most recent data bring the annual growth rate up to 19.6% y/y – the strongest since the start of 2016.
  • But there are reasons not to get too excited. After all, the UK Finance numbers only cover the main high-street banks. And data from the Bank of England which cover all lenders, showed a much more modest increase of 1.4% y/y in November (the latest data). (See Chart 1.)
  • The difference between these figures can be explained by increased competition among high-street lenders following the introduction of ring-fencing last year. Indeed, the average quoted rate on a 75% LTV 5-year fixed rate mortgage fell from 2.05% in January 2019, to just 1.69% in December – the lowest reading on record. And it’s a similar story for higher LTVs too. So instead of reflecting a broader expansion in credit, much of the annual rise recorded by UK Finance reflects these lenders competing for market share.
  • Looking ahead, the outlook for lending is subdued. Granted, with Brexit-related uncertainty easing slightly there may be a modest pick-up in demand, particularly over the next few months. But Boris Johnson’s pledge not to extend the transition period beyond 31st December means some uncertainty will linger.
  • And in any case, already very high house prices and rock-bottom mortgage interest rates will keep a lid on any gains. Indeed, we expect house purchase mortgage approvals and transactions to rise by only between 1.5% and 3% p.a. over the next two years.

Chart 1: Mortgage Approvals for House Purchase (% y/y)

Sources: UK Finance, Bank of England

UK Finance Mortgage Lending – Key Figures

 

2018

2019

                     

Seasonally adjusted

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Gross mortgage lending (£bn)

13.5

13.2

13.5

13.2

13.8

14.0

14.1

14.0

14.6

15.0

14.8

15.3

15.7

Loans for house purchase (000s)

39.1

40.0

39.5

40.3

42.9

42.2

42.6

43.3

42.7

42.6

41.3

44.1

46.8

Loans for remortgage (000s)

27.0

27.4

27.3

29.5

30.9

29.0

29.2

30.7

32.0

32.6

31.8

32.7

33.7

Other secured loans (000s)

7.6

9.3

8.7

8.8

8.9

9.1

9.0

9.2

9.1

9.0

8.4

8.4

9.0

Source: UK Finance


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