UK Mortgage Demand Close To Pre-Covid Levels

Mortgage demand spiked and consumer borrowing rose for the first time in five months as the UK came out of the Covid-19 lockdown, the Bank of England has reported.

The number of new home loan approvals rose from 39,900 in June to 66,300 in July, according to the latest data from the BoE. The Bank said mortgage approvals were just 10pc below their pre-crisis level, stimulated by the release of pent-up demand and the stamp duty holiday included in the package of measures announced by the Chancellor, Rishi Sunak, in July.

The gravity of the lockdown, resulting in the temporary closure of estate agents and preventing would-be buyers from viewing homes, led to the housing market experiencing an abrupt slowdown, with the number of mortgage approvals bottoming out at 9,300 in May.

The data show that net borrowing of £1.2bn in July was similar to the average of £1.1bn per month in the 18 months preceding the lockdown, following a cumulative repayment of debt between March and June totalling £15.9bn.

Sluggish demand for consumer credit between March and June caused the annual growth rate to remain negative at -3.6pc despite the July increase in borrowing, the weakest since records began in 1994.

Simon Gammon, of Knight Frank Finance, commented that the strength of the recovery proves that the cut in stamp duty is working as intended and a sustained period of stable and competitive sales can be expected from now on.

However, he added, whether the recovery lasts will depend on how many people lose their jobs when the furlough scheme ends. And as the reduced rates of stamp duty are due to end in March, it is likely there will be a logjam of transactions building up in the New Year, unless the Government chooses to extend the scheme.

Housing market rulebook ‘rewritten’

Meanwhile, in July the housing market had its busiest month in more than 10 years, with the traditional summer hiatus replaced by a frenzy of activity from buyers and sellers, according to the property portal Rightmove.

The site, typically listing around 95pc of homes for sale in the UK, said the ‘rulebook had been rewritten’, with the boom driven by pent-up demand during lockdown gaining pace as the summer has progressed.

The company said the number of monthly sales agreed in the UK had been the highest since it began tracking the figure ten years ago, an increase of 38pc on the same period last year and worth more than £37bn. Potential sellers were also quick off the mark as more properties came on to the market than in any month since 2008.

Lenders squeezed by social distancing

Although asking prices have fallen by an average of 0.2pc across mainland Britain, this has been driven by a 2pc drop in London, where the number of homes coming on to the market has increased by 69pc year-on-year. Yet asking prices hit record peaks in seven regions as sellers jumped to cash in on the demand.

Figures from Countrywide, the UK’s largest estate agency, showed that demand for homes costing between £500,000 and £750,000 had taken flight since the tax reduction was announced. Rightmove’s figures confirm a similar result for other agents.

The number of sales agreed for first-time homes increased by 29pc, those for homes with three or four bedrooms, excluding four-bed detached properties, rose by 38pc, and for larger homes, agreeed sales were up by 59pc annually.

Miles Shipside, a Rightmove director made the point out that in addition to the release of pent-up demand due to the halt in the housing market during lockdown, there is now extra demand caused by homeowners’ changed housing priorities as a result of lockdown.

The demand for homes has put pressure on lenders and the conveyancing sector which are operating below their usual capacity, owing to social distancing rules. Mr Shipside added that consumers will need to be patient, in view of the fact that some lenders are reducing their product ranges due to manpower restrictions that limit their ability to process mortgages.

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