Mortgage approvals dip in February

Mortgage approvals slipped in February, but remain comfortable above average, according to the latest Bank of England data.

David Ross, Managing Director, Hometrack, said: “The latest figures from the Bank of England show us that the mortgage market continues to ride high on the back of strong applicant demand, driven by the stamp duty holiday and the consumer reengagement following the initial lockdown and market closure of 2020.

“While we can see a seasonal dip in mortgage applications, we remain optimistic that interest for mortgages still remains strong, in light of the 95% mortgage guarantee, the return of high LTV mortgages across the market, the successful roll out of vaccinations, and imminently the easing of lockdown restrictions.

“The market is unequivocally buoyant and we can see from Hometrack data that there are strong indications of committed demand, with mortgage applications continuing to rise. We expect the following months to see an increased rise in mortgage approvals as we have witnessed a 6% increase in mortgage applications in March, compared to September 2020, which was our peak in volumes over the past 12 months.

“Our data also shows us that mortgage applications are shifting towards larger, more expensive properties, and away from the typical first-time buyer, entry level properties, in line with a peak of net borrowing being the strongest since March 2016 albeit against slightly lower volumes. This indicates the ongoing homeowner demand for more space, which has shaped the Covid property market.

“The high volume of activity in the market, boosted in part by the stamp duty holiday extension, means that any concerns about an economic downturn impacting the market is receding, and the outlook for the market is less pessimistic.”

Mortgage borrowing strengthened in February with individuals borrowing an additional £6.2 billion secured on their homes. This was supported by the expected ending of the temporary stamp duty tax relief at the end of March, which has now been extended to end of June.

February saw the strongest net borrowing since March 2016 (£7.2 billion), when borrowing was also boosted by changes in stamp duty. The strength on the month reflected higher gross lending of £27.7 billion, close to March 2016 (£27.9 billion).

John Phillips, national operations director, Just Mortgages and Spicerhaart said: “The housing market is an impressive juggernaut that continues to march forward. While mortgage approvals are down slightly from the peak in November 2020, they are still higher than anyone expected. Undoubtedly, action has been encouraged by the stamp duty holiday and the extension should ensure there is no huge drop-off for the moment.

“However, this is only part of the story. A year on from the start of the first lockdown, what is clear is that the pandemic has spurred people into action. Whether it is those looking to move for more outside space. Or the lack of commute meaning some are choosing to leave the city, in a year where our lives were turned upside down, priorities were shaken up.

“With the extension to the stamp duty holiday, the reintroduction of 95% LTV mortgages and the furlough scheme running till September, the property market should keep moving at a pace and we may see records broken for the first quarter of 2021.”

The strength in mortgage borrowing follows a large number of approvals for house purchase. In February, there were 87,700, which – while down from a peak of 103,700 in November 2020 – was well above the monthly average in the six months to February 2020 (67,300) (Chart 1). Approvals for remortgage (which only capture remortgaging with a different lender) rose slightly to 34,300 from 32,600 in January 2021.

CEO of Enness Global Mortgages, Islay Robinson, said: “A considerable reduction in the number of mortgage approvals was always on the cards as we approached the stamp duty holiday deadline. However, those that were still committing to a purchase continued to take advantage of favourable interest rates with the sums lent continuing to climb to some of the highest levels seen in well over a decade.

“Of course, with a stamp duty holiday extension now in place, we can expect this foot off the pedal to be a momentary trend and a further spike in buyer demand to reappear in the coming months.”

The ‘effective’ rate – the actual interest rates paid – on newly drawn mortgages rose 6 basis points to 1.91% in February. That is slightly higher than the rate in January 2020 (1.85%), and compares with a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained at series low (2.09%)

CEO of Keller Williams UK, Ben Taylor, said: “It’s becoming quite clear how impactful the current stamp duty holiday has been in driving homebuyer demand and even the mere sight of the original deadline appearing on the horizon was enough to substantially reduce mortgage approval levels.

“That said, the market was far from teetering on the supposed cliff edge that the deadline was due to bring and homebuyers continued to flood the market with confidence. Not since before the 2008 financial crisis have we seen such abundant levels of monthly mortgage lending and this bodes very well for the year ahead.”

Matthew Cooper, Founder & Managing Director of Yes Homebuyers, said: “Today’s mortgage approval figures provide a brief look at what faces the market when the stamp duty holiday does finally expire. The substantial drop in approvals seen during February will no doubt reverse due to the boost of a stamp duty holiday extension announced in the March Budget.

“However, it’s now clear that when it does finally come to an end, buyer demand is going to plummet. When it does, the rate of house price growth won’t be far behind and so those thinking of selling are best to do so now before this dip in property values hits.”