Mortgage approvals increase at sharpest rate since 2007

September 30, 2020 / Isla MacFarlane
Mortgage approvals increase at sharpest rate since 2007

Mortgage approvals indicate that the property market is on track for a V-shaped recovery, with approvals at a 13-year high.

Paul Stockwell, Chief Commercial Officer of Gatehouse Bank, said: “A V-shaped recovery in the UK property market appears to be on track, with mortgage approvals increasing past pre-pandemic levels with 11,000 more agreed in August compared to February.

“However, August was not just a busy month for the market in the context of lockdown, but was a particularly strong month when compared to activity over the last few years. Lending approvals in February 2020 had already hit their highest point since January 2014.

“Much of August’s rebound is owed to pent-up demand during lockdown, but these figures also contain the first-full month of activity from buyers incentivised to find a new home as a result of the stamp duty holiday announced in July.

“Lending approvals, coming early in the conveyancing process, are one of the leading indicators of market activity so August’s figures suggest a strong autumn to come.”

Net mortgage borrowing was £3.1 billion in August, similar to July. Mortgage approvals for house purchase increased sharply to 84,700, the highest since October 2007. Effective mortgage interest rates were broadly unchanged.

Gareth Lewis, commercial director of property lender MT Finance, said: “The impressive pick up in mortgage approvals is what you would expect – if we go all the way back to Brexit, there has long been pent-up demand and people waiting to move, Covid then hit and people were still waiting. Now, there are so many ‘for sale’, as well as ‘sold’ signs, illustrating that there is confidence and a willingness to invest in property.

“Consumer credit has bounced back and stabilised, which is encouraging as it shows people are not over-stretching themselves by increasing debt and getting into financial difficulty. People are maintaining a grasp of reality.”

Managing Director of Enness Global Mortgages, Hugh Wade-Jones added: “Despite a reduction in the availability of high loan-to-value products, we’re yet to see the level of mortgages approvals tail off due to overwhelming levels of buyer demand in recent months. In fact, approvals are at their highest levels in nearly 13 years. Unlucky for some, but certainly not for the nation’s current home buyers and sellers.

“Homebuyers at all price tiers are digging deep to come up with a larger deposit to secure a stamp duty saving, and although many lenders may be treading with caution, they continue to make hay while the sun shines.

“This trend will continue to be driven forward by the high-end market who have far fewer obstacles in their way when obtaining a mortgage but still recognise that investing now makes good financial sense.”

Would-be buyers are also digging deeper for larger deposits. Director of Benham and Reeves, Marc von Grundherr, said: “We’ve seen little to no let-up in the volume of homebuyers hitting the market despite a tightening of finance options available.

Where they may have been traditionally buying with a 15% to 20% deposit, they’re now stretching to as much as 30%.

“They are doing so to not only to take advantage of the favourable rates currently on offer but to secure a stamp duty saving in the process. Since the stamp duty holiday was announced, the number of mortgage approvals seen on a monthly basis has more than doubled, and so the boost it has given the market cannot be underestimated.”

On net, households borrowed an additional £3.1 billion secured on their homes, following borrowing of £2.9 billion in July. Mortgage borrowing troughed at £0.5 billion in April, and is still a little below the average of £4.2 billion in the six months to February 2020. The increase on the month reflected slightly higher gross borrowing of £18.8 billion, although it is still below the pre-Covid February level of £23.7 billion.

Jonathan Harris, managing director of mortgage broker Forensic Property Finance, said: “It is no surprise to see a sharp hike in mortgage approvals for house purchases in August. The market has been buzzing during what is usually a quiet, holiday month, as buyers free from lockdown restrictions got on with moves to the country and took advantage of the stamp duty holiday while they can.

“Lenders have sometimes struggled to cope with the sheer volume of applications and service levels have not always been what we would expect so borrowers must leave longer for transactions to complete.”

While mortgage approvals increasing sharply in August, to 84,700 from 66,300 in July – the highest number of approvals since October 2007 – it only partially offsets weakness seen between March and June. In total, there have been 418,000 approvals in 2020, compared with 524,000 in the same period in 2019. Analysts fear the uptick may be a spike rather than a trend.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “These figures are beginning to show the impact of the stamp duty change in July and how it transformed the market which had been in the doldrums post-Covid. Of course, it is only recently that we have started to see a few signs of that upsurge running out of steam, which has been caused as much by concerns over the spread of the virus as lack of lender enthusiasm.

“Looking forward, we don’t expect to see a significant change particularly in prices as the increase in listings is helping keep a lid on rises and some growing nervousness is reinforcing determination of buyers not to overpay.”

Others fear that the spike could be snapped when the furlough scheme ends in October. Ross Counsell, Chartered Surveyor and Director at Good Move, said: “The mortgage market showed more signs of recovery in August, with the number of mortgage approvals rapidly increasing. Government measures such as the stamp duty holiday have impacted this spike, with more people eager to take full advantage of the savings and purchase a home.

“However, we must not forget that the furlough scheme is soon coming to an end. This combined with job losses and income uncertainty will take some buyers out of the market. In the coming weeks, we hope to see lenders and brokers working around the clock to ensure their customers get the best mortgage for their circumstances at the best possible rate which in turn, will protect their assets.”

While the increase in mortgages is cause for celebration, the overall consensus appears to tell us to enjoy it while it lasts.

Founder and CEO of Yes Homebuyers, Matthew Cooper, concluded: “Great news on the face of it and figures that portray a very healthy market. However, it’s probably a little too soon to pop the champagne and wave goodbye to any detrimental pandemic induced market declines.

“Current approvals figures may well be skewed by sales agreed prior to the pandemic hitting the market and with the furlough scheme soon to end, it’s unlikely this level of momentum will be maintained in the long-term.

“For the time being, this honeymoon period of mortgage approvals and house price growth will help boost market sentiment. But we could soon find ourselves in a very different place over the coming months.”

Did you like this? Share it: