A slow start to 2010, but don’t worry just yet
There was a low start to the year for the UK mortgage market as a sharp drop in mortgage approvals in January demonstrates.
The Bank of England has said that the number of home loans approved for house purchases in January fell by 17% compared with December. The 48,198 approvals was the lowest number for eight months, but was in fact still 43% higher than a year earlier.
Most analysts have made the point that the end of the stamp duty holiday was behind the drop and that it was not symptomatic of a weaker market or a return to the unwillingness to offer credit on behalf of lenders we have seen before.
The stamp duty threshold dropped back to £125,000 on 1 January, prompting a rush on mortgage approvals and completed home sales in the final months of 2009. The government initiative, which had temporarily raised the threshold up to £175,000 for just over a year, was aimed at halting a rapid slump in the property market.
In addition to the stamp duty holiday ending, analysts have blamed the severe winter weather for playing a part in driving gross mortgage lending down to £10.2bn from £13.5bn in December.
Last week, the Nationwide building society pointed to the slowdown in lending as the reason behind the first fall in UK house prices for 10 months. Nationwide said average property values dropped by 1% in February compared with January, with the average home worth £161,320.
My judgement is that this downturn in transactions will prove to be only temporary and that buyer interest will rebound in the February data. The end of the stamp duty holiday will have artificially inflated the December figures and depressed the January figures, but this effect will be contained almost entirely in those months only.
The Bank of England figures also indicate that the record low Bank rate of 0.5%, and low variable mortgage rates, has deterred people from signing up to new fixed-rate mortgages.
Some £500m was borrowed above repayments in January, up from £265m in the previous month. Within this, net credit card borrowing increased by £171m and other loans and advances increased by £330m.
Repayments had outstripped borrowing for most of the second half of 2009 as borrowers also found it difficult to secure further loans.
In conclusion, this month’s figures look quite bad but the stamp duty holiday and extreme winter weather does convincingly explain this. During the next few months we should see a return to slow but steady growth in the UK housing market.
