Mortgage Approvals at 18 Month Low but House Prices Remain Resilient


September 2016

Mortgage Approvals at 18 Month Low but House Prices Remain Resilient

The Bank of England’s latest mortgage data shows the number of approvals fell to an 18 month low in July, but data from Nationwide shows house price inflation remaining strong in the wake of the Brexit vote.

According to the Bank of England, 60,912 mortgages were approved in July, the lowest number since January last year and around 5% lower than the 64,152 approvals seen in June.

The number of mortgage approvals has been falling steadily since early this year, and is not the only indicator of reduced activity in the housing market over the past few months. The Royal Institute of Chartered Surveyors already reported that, following successive months of falling rates of enquiries, they predict sales to continue to drop as the year goes on.

At the time, Rics reported that, with more than a quarter of members predicted sales to fall than to rise, “this is the most negative reading for near-term expectations since 1998”.

In the run up to, and immediate aftermath of, the EU referendum, members of the remain campaign were adamant that a vote to leave would negatively affect the housing market. However, while the vote does appear to have had some effect on buyer activity, other factors like the stamp duty change in April, meant that most figures for subsequent months have been somewhat skewed.

Indeed the extent of the Brexit effect is very much till up for debate, particularly as the latest house price index release from Nationwide, issued soon after the BoE’s mortgage stats and covering August rather than July, showed the market to be holding up fairly well. By their estimate, house prices grew by 0.6% between July and August, up from 0.5% growth between June and July. This put annual growth at 5.6% - up from 5.2% in July.

Nationwide’s chief economist, Robert Garner, said that the resilience in house price inflation may seem unexpected given the negative reports about buyer activity from the likes of Rics, but explained that lower activity has been coupled with weakened supply, and so the two have balanced out somewhat.

He said: “The pick up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months. New buyer enquiries have softened as a result of the introduction of additional stamp duty on second homes in April and the uncertainty surrounding the EU referendum. The number of mortgages approved for house purchase fell to an eighteen-month low in July.

“However, the decline in demand appears to have been matched by weakness on the supply side of the market. Surveyors report that instructions to sell have also declined and the stock of properties on the market remains close to thirty-year lows. This helps to explain why the pace of house price growth has remained broadly stable.”

Samuel Tombs, however, still described Nationwide’s figures as somewhat “incongruous”, given the rest of the data on the housing market that we have available at the moment. Halifax, for example, reported a 1% drop in July, though have not yet released data for August.

All in all, the general consensus still appears to be that activity will continue to slump as the year progresses, and that prices will soften accordingly.

Howard Archer of IHS Global Insight said: “We believe housing market activity is likely to be limited over the coming months and prices will weaken, as heightened uncertainty following the UK’s vote to leave the EU weighs down on consumer confidence and a willingness to engage in major transactions.”