William John Market Report 05-06-21
Analysis from William John on the Bank of England’s latest statistics on mortgage lending.
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William John Market Report 05-06-21

William John Market Report 05-06-21

Category: Reports

Despite a rapid surge in house prices across the U.K., fuelled primarily by a stamp duty tax holiday and a pandemic-induced shift in housing preferences, U.K. mortgage lending has fallen below the £5.7 billion monthly average borrowed in the six months to February 2021 standing at £3.3 billion for April 2021. Notably, this was a rapid fall from the record £11.5 billion in additional borrowing secured on resident’s homes recorded in March. 

Although mortgage lending significantly decreased between March and April, both gross lending and mortgage repayments remain at levels higher than observed at the beginning of 2020, standing at £26.2 billion and £19.9 billion respectively, according to data released by the Bank of England on 02/06. It is likely that the fall in mortgage borrowing is reflecting a relaxing market sentiment. The stamp duty holiday announced by the Treasury, which was set to finish at the end of March, has been extended until the end of June. With this information, there is less pressure on buyers and sellers to negotiate sales before the end of the holiday and the market for mortgages has likely taken a “deep breath” as tax holiday transactions are likely to continue over the summer. 

Aside from the fall in monthly mortgage lending, the booming housing market remains strong. Approvals for house purchase in April 2021 were recorded at 86,900, slightly up from 83,400 in March but down from a recent peak of 103,400 in November 2020. To put this into context, there were 73,400 approvals for house purchase in February 2020, demonstrating the strength of the market on a transactional basis. 

Finally, the actual interest paid on newly drawn mortgages was recorded at 1.88% in April 2021. Marginally above the rate recorded in January 2020 of 1.85%, it compares to a Bank of England data series low of 1.72% recorded in August 2020 – reflecting cheap borrowing that is propelling bullish market movements. With this being said, it affirms a strong U.K. housing market will continue into the summer of 2021. 

However, as restrictions ease, a “saving splurge” has been forecasted from households who saved 16.1% in Q4 2020, according to data released by the Office for National Statistics. That is the second highest savings ratio since records began in 1963. Should households decide to spend more than anticipated in a less restricted economy, this could provoke contractionary monetary response by the Bank of England, which is already tapering its asset purchases, hiking interest rates, and stabilising an aggressive economic rebound from COVID-19 which is all but certain. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.