Mortgage lending rockets by a massive 33% year-on-year in January

20th February 2014

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The UK housing market has kick-started 2014 very much on the up as gross mortgage lending jumped by 33.3% year-on-year in January according to trade body Council of Mortgage Lenders (CML).

The latest update “provides firm evidence which fuels suspicion that house prices are headed markedly higher” says Howard Archer, chief European & UK economist at research group IHS.

The CML reported that gross mortgage lending amounted to £15.5bn in January. While down from £16.8bn in December, the data is not seasonally adjusted and a dip virtually always occurs in December. The key point to note is that gross mortgage lending was up 33.3% year-on-year from 11,624 in January 2013.

Archer says: “While the strength of house prices is not yet a serious concern outside of London, it is something that needs to be closely monitored given that a number of recent data and surveys have indicated that the strength in house prices is becoming more widespread. There is rising buyer interest and strengthening market activity across regions.”

With the latest data and surveys consistently showing markedly rising buyer interest and strengthening housing market activity, house prices look set to see further strong increases over the coming months despite the Bank of England ending Funding for Lending support for mortgage lending from the start of January.

CML chief economist Bob Pannell says: “Housing market indicators in the UK continue to be positive, although seasonal factors are likely to have affected activity levels. Monthly approvals for house purchase averaged 70,000 in the final quarter of 2013, the strongest for six years.

“The Bank of England envisages that approvals may climb to 90,000 a month in the second and third quarters of 2014. This would seem to imply property transactions running at an annualised rate of one and a half million or so. We think this may be over-optimistic given the growing anecdotal reports of a shortage of prospective sellers.”

Archer adds: “Housing market activity is being supported by substantially improved consumer confidence, markedly rising employment and extended low mortgage interest rates and is still being fuelled by the Help to Buy initiative.

“Meanwhile, limited supply of houses is a factor pushing up prices in an increasing number of areas and not just in London. Indeed, the latest RICS survey indicated that the headline sales-to-stock ratio rose to 35% in January, the fourth consecutive month above its long run average of 32% and the highest reading since September 2007.”

Archer expects house prices to increase by around 8% in 2014 with gains across the country. Furthermore, there is a genuine possibility, he adds, that this could prove to be a conservative forecast as there remains a very real danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted significantly by the “Help to Buy” mortgage guarantee scheme which was launched in October.

While the Bank of England currently does not currently see excessive house price rises outside London, its boss Mark Carney has expressed concern about the UK’s past record of house booms and busts, and Archer believes it will take further action later this year to try and dampen the housing market.

He adds: “This could very well include the Bank of England recommending to the government that it dilutes the Help to Buy mortgage guarantee scheme. In particular, the £600,000 price limit for a house under the scheme could be cut, perhaps to £300,000. Significantly though, the Bank of England has indicated that it would prefer not to use higher interest rates to try and cool the housing market down.”

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