The United Kingdom mortgage market has reacted unexpectedly to the economic crisis induced by the coronavirus pandemic. Several government measures coupled with changing consumer behaviors have seen mortgage approvals hit a new high in over a decade.
Data presented by Buy Shares indicate that the UK mortgage approvals have grown 50.97% on a year-over-year basis as of October 2020. The approvals were highest in October 2020 at 97,530. Elsewhere, May 2020 recorded the lowest approvals at 9,270. The approvals mainly entail house purchase lending and remortgaging.
The research also overviewed the historical mortgage approvals since August 2007 and October 2020. The October 2020 figures represent a 13 year high. The current number is the highest since September 2007 when the figure stood at 108,000 while in October 2020, it is at 97,532. The approvals were lowest in June 2020 at 9,273.
Stamp tax holiday fuels rejuvenate mortgage market
As the data highlights, the UK’s housing market has made an impressive rebound following the end of the first coronavirus lockdown. Interestingly, the housing sector has been booming despite the coronavirus induced recession. Normally, during such a challenging economic crisis, the housing sector is among the most hit.
The surge has been motivated by various measures undertaken by the government to cushion citizens against the pandemic’s full economic impact. The accelerated rebound in the UK property sector is a contrast to other sectors of the economy that significantly shrunk due to the pandemic.
The government’s decision to remove the stamp duty is the main catalyst for the surge in mortgage approvals. Between February and March, the approvals fell dramatically, before the introduction of the stamp duty holiday that runs until March next year. With the tax relief, homebuyers seeking to purchase properties valued up to £500,000 are exempted from paying home buyers tax.
It is worth highlighting that before, the pandemic, UK housing was recording a surge in prices keeping away many home buyers. The stamp tax holiday has forced people wishing to buy houses to borrow money to realize their dreams contributing to the growth in approvals.
Furthermore, the surge in mortgage approvals is attributed to a change in consumer behavior as a result of the pandemic. With the health crisis, working from home culture gained more dominance as many remained under lockdown. With such changes, some consumers are looking to upgrade their homes to better suit their new lifestyles, which now involve more time at home and remote working. Most specifically, there has been a dash for larger homes and gardens.
The drop early this year was recorded in the absence of any measures to cushion customers. Most people lost jobs in the wake of the dwindling number of low deposit mortgages. These factors forced many lenders and consumers to approach each other with caution as the level of risk was still unknown.
Uncertainty over how long the housing bull run will continue
Despite the renewed Covid-19 restrictions, the stamp duty suspension has continued to fuel activity in the market even during the third quarter. The demand might continue with many borrowers still looking to secure lending before the March deadline.
For the approvals to be sustained in the future, it depends on the full impact of the pandemic on the economy. A second lockdown meant that most people are now out of employment and they might keep off borrowing for now. The approval of vaccines in the UK might however change fortunes. Although the vaccine is being administered, it is still too early to determine what will be its full impact on the economy as only a small fraction of the population has been vaccinated.