From 1st July the Council of Mortgage Lenders is integrated into a new trade association, UK Finance. For the time being, all UKF mortgage information will continue to be published on this website, and UKF member-only mortgage information will only be available here.

UK Finance represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation takes on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Please go to for wider content and updates from UK Finance.

  1. Home
  2. News
  3. News & Views
  4. Market commentary September 2013

Market commentary September 2013


Published: 19 September 2013 | Author: Bob Pannell

  • Prospects for the UK economy continue to brighten, although there is a risk that expectations are running too high.
  • The housing market is in the early stages of what appears to be a relatively benign and broad-based recovery.
  • With little pick-up in net lending to individuals, talk of housing booms is premature, and speaks more about housing supply shortfalls than the current strength of demand.


The economic picture continues to brighten, with economists falling over themselves to revise up their growth forecasts for this year and next. The latest survey of economic forecasts, compiled by HM Treasury, shows expected GDP growth of 1.3% this year and 2.1% next (respectively 0.4% and 0.5% higher than three months ago).

The growing evidence of economic recovery is welcome, but it is worth asking if the optimism – so long in arriving - is being overdone a little.

Reflecting on the structural damage inflicted on industry and the wider UK economy by the credit crunch, Business Secretary, Vince Cable - a high profile politician expressing disquiet over the state of the housing market - recently voiced concerns that the recovery is not yet fully established. 

Chart 1: Consumer confidence

MC Sep 2013 Conf

Source: GfKNOP

Note: Long-term average score is -9


GfK figures point to a very strong turn-round in consumer confidence in recent months, with households at their most confident since October 2009. The apparent upsurge in sentiment is dramatic, mirroring that seen in 2009 in the wake of the unprecedentedly aggressive monetary easing undertaken by the Bank of England.

Even the GfK commentators were hard pressed to explain this seeming paradox of an upsurge in confidence while real incomes have been falling. And as Sunday Times economic editor David Smith recently highlighted, there is much uncertainty as to how strongly household incomes will grow, even as the economy gathers strength.

Financial markets are clearly bullish about the UK’s economic prospects, and have been pushing market rates higher for some while.

The unexpectedly strong jobs data for the three months to July – an 80,000 rise in employment and 0.1% fall in the headline unemployment rate to 7.7% - reinforces market views that UK base rates may start to rise in 2015. That is sooner than the Bank of England has intimated, under its new policy of forward guidance.


Housing & mortgage markets

We are beginning to experience a healthy and seemingly broad-based recovery in mortgage lending activity.

We attribute much of this turn-round to the improvement in funding markets generally, and also to the funding for lending scheme (FLS). Funding costs for firms have been much lower over the past year or so, and this has been reflected in more attractive pricing and availability of mortgages. For example, MoneyFacts recently highlighted that the average two-year tracker fell below the 3% mark for the first time since its records began.

Discounting temporary blips associated with previous stamp duty holidays, HMRC figures show that housing transactions are at their strongest since early 2008.

The recent strength of property sales has gone hand in hand with stronger mortgage lending figures, as cash sales continue to account for about a third of overall sales.

CML figures show that 58,400 households took out mortgages worth £9.1 billion to buy homes in July, up by 9% compared to June and by 21% compared to July last year. This is the fourth month in a row to have seen year on year growth.

First-time buyers continue to feature prominently, with more than 25,000 loans advanced, although the month on month increase was a more sedate 5%.

Remortgage activity by home-owners is running at subdued levels, compared to historical norms, but even here lending is picking up on year-earlier levels. In July such remortgage lending increased by 9% on June, and the £3.8 billion advanced represented a 15% increase compared to the same month last year.

Buy to let activity also looks resilient, with July’s lending of £2 billion continuing the period of stronger house purchase and refinance activity by landlords.

This picture, of a broad recovery from the depressed levels of the credit crunch period, looks set to persist for the time being. 

Our forward estimate is that overall gross mortgage lending was £16.6 billion in August. This would have been the same as in July and 28% higher than a year ago. Meanwhile, the Bank of England’s approvals data suggests that the positive tone for house purchase and remortgage lending will continue.


The housing boom that isn’t

One tell-tale sign of a recovering housing market has been the re-emergence of concerns about a housing boom. 

Some of this reflects the fact that market sentiment has changed quite abruptly over recent months, and also that other parts of the UK – not just London and the south east - are now beginning to see a recovery. And some of it reflects entrenched views about the mortgage guarantee scheme due to be launched under the Help to Buy umbrella next January.

There is certainly a wide range of evidence that house prices nationally have recently begun to strengthen. The indicators, compiled by LSL/Acadametrics, indicate the current year-on-year rate of increase lies somewhere within the 0.8-5.5% range, but clustering around 3-4%. 

And the latest Reuters housing market poll shows an upwards revision since May in expected house prices – forecasters predict that house prices are set to rise by 4% this year and 5.5% next, outstripping inflation by a few percentage points and allowing a modest recovery in real house prices.

But, as we have argued elsewhere, the housing market recovery to date appears fairly unexceptional in nature, at least compared with that of the early-mid 1990s.  And as Chart 2 shows, by way of example, factoring in the Reuters consensus view of house price growth over the next 18 months does little to transform the underlying narrative of subdued house prices in real terms.

Chart 2: Evolution of real house prices, % fall from peak 

MC Sep 2013 PTT2

Source: ONS, Lloyds Banking Group, CML estimates


Governor Mark Carney has been very restrained in his views concerning the housing market in recent weeks, a tone reiterated in the minutes of the latest MPC meeting

And, whilst the Governor has clearly signalled the Bank’s vigilance to housing market developments, we believe that policy-makers are firmly in monitoring mode.

Worryingly for the “boomsters”, it is hard to find evidence of much debt-fuelled borrowing, to stoke a runaway housing market. 

Indeed, successive releases of FLS data serve mainly to underline that overall net lending remains broadly flat. Aggregate net lending to individuals has been positive, and although it picked up slightly in Q2, the recovery has been more noticeable for consumer credit.

Chart 3: Lending to individuals, 12 month growth rates, %

MC Sep 2013 Credit

Source: Bank of England

The really interesting aspect of the housing boom story is the fact that it has gained such traction so early on in the housing recovery. But, as a recent blog by Yolande Barnes, director of residential research at Savills, notes, this speaks much more powerfully about the UK’s failure to tackle inadequate housing supply than the current strength of housing demand.