Mortgage Lending (May) - Capital Economics
UK Housing

Mortgage Lending (May)

UK Housing Market Data Response
Written by Hansen Lu

Despite the housing market reopening half-way through May, house purchase mortgage approvals once again fell sharply. But signs of a bounce back in buyer demand in June, combined with resilient mortgage availability outside of high LTV lending, suggest that approvals will recover in the coming months.

Surprise fall in mortgage approvals

  • Despite the housing market reopening half-way through May, house purchase mortgage approvals once again fell sharply. But signs of a bounce back in buyer demand in June, combined with resilient mortgage availability outside of high LTV lending, suggest that approvals will recover in the coming months.
  • Mortgage approvals for house purchase fell again in May, to 9,273 loans. That was a hefty 41% fall compared to the already weak 15,851 approvals recorded for April, and was considerably weaker than the consensus expectation of 25,000. On an annual basis, lending was down by 85%.
  • The latest fall isn’t a sign that the market is struggling to recover. Rather, it probably reflects the gap in the sales pipeline, from when the market was closed between March and May. With households confined to their homes, there would have been far fewer sales than usual moving to the mortgage approval stage in May. Also, many buyers with half-completed sales have been renegotiating on price, which also points to a delay in the sales pipeline.
  • Lending is likely to pick up next month. Property portals have reported a surge in demand and agreed sales across late May and June. What’s more, credit availability remains fairly good – banks have pulled back on very high LTV loans, but availability across the rest of the mortgage market remains solid.
  • In the near term, mortgage approvals for house purchase are still on track to fall by 70% q/q in Q2, as per our forecast from March. But the big picture is that, with the market having reopened, lending has now passed its floor. As the sales pipeline is rebuilt over the coming months, we expect monthly mortgage approvals to recover to perhaps 85% of its pre-lockdown level by December.

Chart 1: Mortgage Approvals for House Purchase (000s per Month)

Source: Bank of England

Table 1: Bank of England Mortgage Lending – Key figures

2019

2020

Seasonally adjusted

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Value of loans approved £bn

21.7

21.9

22.1

22.4

22.5

22.5

23.0

23.5

24.7

25.2

19.6

9.3

7.1

%y/y

-0.4

0.5

6.1

-0.5

3.2

2.8

6.4

10.3

11.2

15.9

-8.8

-57.3

-67.3

Approvals for House purchases 000s

65.2

66.0

67.0

65.8

66.2

65.6

66.1

68.2

71.6

73.7

56.1

15.8

9.3

%m/m

-0.9

1.3

1.5

-1.8

0.6

-1.0

0.9

3.1

5.0

2.9

-23.8

-71.8

-41.5

%y/y

0.5

0.8

3.3

-0.7

0.7

-2.9

1.7

5.2

7.3

12.6

-9.5

-75.9

-85.8

Source: Bank of England


Hansen Lu, Property Economist, hansen.lu@capitaleconomics.com