As the financial market continues to assess the full impact of the coronavirus pandemic, the United Kingdom mortgage market is the latest to showcase the full brunt of the crisis. Amid the pandemic, the number of UK mortgage approvals took the biggest slump in almost three decades.
Data obtained by Buy Shares show that between March 2020 and April 2020, the mortgage approvals slumped by 71.76%. In March, the approvals stood at 56,160 and later dropped to 15,850 for April. This year, the highest mortgage approvals in the UK were recorded in February at 73,550 an increase of 3.75% from January’s figure of 70,890. Between April 2019 and April 2020, the approvals dropped by 76.07%. In April last year, the figure stood at 66,260. In the course of 2019 between April and December, the approvals remained constant with an average of 65,960
Our data also overviewed mortgage approvals in the UK between January 1987 and April 2020. During the period, the approvals registered a slump of 86.61%, the highest in history. In January 1987, the number stood at 118,400. The highest mortgage approvals were recorded in April 1988 at 151,500 before embarking on a downward trajectory to hit a low of 62,600 in December 1992. From this low, the approvals fluctuated to hit the biggest slump in 27-years in April this year. Another notable slump was recorded amid the financial crisis in February 2009 at 27,000. Over the last ten years, the highest UK mortgage approvals were in March 2014 at 76950.
COVID-19 impact on mortgage approvals in the UK
The coronavirus has led to an economic shutdown resulting in millions of unemployment, a scenario that is set to continue for the unprecedented future. In this case, households cannot manage to apply for mortgages for building houses. Even though there are reliefs from the government, it will not be enough to cover basic expenses plus mortgage payments hence the low approvals recorded in the UK in April.
It is worth mentioning that although the Coronavirus significantly impacts the old healthwise, young people who are first-time employees and lowly paid have been impacted significantly financially. In this case, first time home buyers who are mostly young people are set to reduce. Additionally, the young population which makes up a big percentage of the workforce has been affected by unemployment.
Notably, the nature of the virus calls for minimal movement of people, something that impacts mortgage approvals directly. In most cases, for mortgages to be approved, there are multiple steps behind the scenes like title searches, appraisals, applicant employment and income verification, and government recordation offices. All these activities involve movement from one place to another, with the UK on lockdown in April, the movement was minimized.
Amid the pandemic, some leading lenders like Nationwide pulled out of new mortgage deals. According to Nationwide, the temporary pause on new lenders was meant to it ample time to focus on existing homeowners. Other lenders have been forced to tighten lending criteria during the crisis citing reduced staff levels, concerns over virtual valuations, and prioritizing customers in financial distress. On the other hand, most properties that were on the market before the crisis are yet to be sold. Property agents have now turned to virtual viewings and formulating new contract clauses to encourage more activity.
Mortgage sector post-coronavirus period
Moving forward, the approvals might remain low because coronavirus poses new, unforeseen threats. It is worth noting that the full impact of the virus will vary based on geography and some regions already have mechanisms in place that can allow operations in such an environment.
As a new normal of living with the pandemic, stakeholders will have to adopt digital options across the industry. As a precautionary measure, many consumers will prefer digital tools and virtual experiences that were not in existence pre-coronavirus period.
For lenders, they will have to engage in remote operations while at the same time utilizing collaborative tools for interacting with customers. The goal is to use online tools for seamless interaction with consumers. This scenario calls for strategic thinking and planning for a long term solution that will keep the industry afloat in case such a crisis re-emerges in the future.