Mortgage approvals rise but experts predict lacklustre housing activity in 2018
Mortgage approvals for home purchases rose to 40,117 after having fallen to a five-month low in December.
Mortgage approvals rebounded in January but experts cautioned that interest rate hikes coupled with the the continued squeeze on household finances would lead to lacklustre housing activity throughout 2018.
The number of mortgage approvals for home purchases rose to 40,117 last month after having fallen to a 56-month low of 36,085 in December, according to the latest data from UK Finance.
That was above consensus estimates for 37,000 and represented a three month high – having stood at 40,599 in October.
Gross mortgage lending in January is also estimated to have reached £21.9 billion, up 9.7% from a year earlier.
Eric Leenders, managing director of personal finance at UK Finance, said: “Gross mortgage lending in January increased by almost 10% compared to the same period last year, and was higher than the monthly average, as customers took advantage of mortgage deals on offer at the end of 2017.”
January’s rebound in mortgage approvals do little to dilute our belief that 2018 will be a difficult year for the housing market and price gains over the year will be limited to a modest 2%. Howard Archer, EY Item Club chief economic adviser
However, experts were wary of taking the figures as a sign that the UK property market would be bouncing back in 2018.
Howard Archer, chief economic adviser for the EY Item Club, said the pick-up in mortgage approvals in January “suggests that there may have been a hit to activity in December as a knee-jerk reaction to the Bank of England raising interest rates in November”, though stamp duty reductions for first-time buyers also likely supported numbers.
While December’s drop probably “overstated” the weakness of housing market activity, January’s mortgage approval figures were still deemed weak – having still been the third lowest level since September 2016 as consumer finances continued to be squeezed and confidence remained fragile.
“Housing market activity is expected to remain lacklustre as the extended squeeze on consumer purchasing power only gradually eases, confidence is fragile and appreciable caution persists over engaging in major transactions,” Mr Archer said.
He added that house buyers are likely to face two interest rate hikes in 2018.
“Furthermore, house prices are relatively expensive relative to income,” Mr Archer added.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he was also reluctant to come to the conclusion that January’s figures signalled business as usual for Britain’s housing market.
“Mortgage rates have only risen marginally over the last three months — the average five-year fixed-rate was just nine basis points above its September’s low in January — but they likely will rise by about 60bp over the next six months.
“Wholesale funding rates have jumped since the start of the year, while the Term Funding Scheme will no longer subsidise new lending from the end of this month. Other indicators also suggest that demand is weakening,” Mr Tombs said.
Figures showed consumers were also putting away less cash, leading to a drop in personal deposits in savings from £845 million to £834.9 million in January.
That was alongside a drop in borrowing, which fell 0.2% on an annual basis, accounting for credit card spending, personal loans and overdrafts.
While it pointed to further caution over personal finances, lenders have also been reining in the amount of unsecured credit available to customers.
Mr Archer said the drop in borrowing was likely to be taken as good news by the Bank of England.
“The Bank regards the past uptrend in consumer borrowing as posing a “pocket of risk” to the economy and has warned that banks risk becoming complacent in their lending behaviour,” he explained.