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Market commentary September 2014


Published: 18 September 2014 | Author: Bob Pannell

  • We estimate that gross mortgage lending totalled £18.6 billion in August, as the seasonal strength of the housing market continued over the summer.
  • A gentle slowing of lending activity may now be in prospect, as a result of the continuing impact of tighter lending rules and a softening of the London market.


Continuing optimism about short-term prospects here in the UK contrasts sharply with the sluggish growth across the eurozone, where the European Central Bank has recently moved to lower official interest rates further and to announce a large-scale asset purchase programme, focused on asset-backed securities including those backed by residential mortgages.

The latest batch of UK indicators confirms the strength of the jobs market and the subdued nature of inflationary pressures – headline consumer price inflation dipped to 1.5% in August from 1.6% in July. 

Given a relatively benign domestic background and a number of international headwinds, there is little immediate pressure on the Monetary Policy Committee to move quickly to tighten monetary policy. The minutes of its September meeting repeated the previous month’s 7-2 majority in favour of maintaining the status quo.

Over recent weeks, financial market expectations have edged in favour of the first rise in UK base rates being later and the subsequent trajectory of future rates being somewhat shallower. 


Housing and mortgage markets

Housing market activity is typically stronger over the summer months, and seasonal factors have underpinned some positive headline indicators recently.

The Bank of England reported gross mortgage lending of £19.7 billion in July. This was the strongest monthly outturn in six years and, as our monthly figures highlighted, marked similarly positive performances for first-time buyers, movers and buy to let activity.

Broadly speaking, as Chart 1 shows, this represents a continuation of the underlying trends we have been seeing for some time.

Chart 1: UK property transactions, 12-month moving totals 

Market commentary Sep 2014 trans

Source: CML Regulated Mortgage Survey and CML estimates


Remortgage activity represents a notable exception to an otherwise fairly strong picture.

After languishing at 15-year lows, we began to see a more consistent recovery in year-on-year remortgage activity through much of 2013 and the early months of this year. More recently, borrower appetite appears to have fallen away once more, with the number of households remortgaging in July weaker than a year ago.

Remortgage activity looks set to remain fairly subdued, until such time as the fear of imminent rate increases shifts the financial incentives to switch. 

The narrative of recovering house purchase and buy-to-let activity continued through August, with our forward estimate being that gross lending totalled £18.6 billion for the month.  

However, it is important to be aware that this picture is being flattered by strong seasonal factors through the summer period. 

The seasonally adjusted gross lending figure of £17.1 billion in July was little changed on May and June, and reasonably flat since the turn of the year, and our forward estimate suggests a similar order of magnitude in August.

On this basis, our figures indicate that lending activity has reached something of a plateau. This ties in with the latest report of the Bank of England’s agents, which noted that housing market activity had stabilised at lower transaction levels than at the start of the year.

Indeed, a number of indicators, especially those reflecting earlier stages of the house purchase or lending process, such as the Bank’s house purchase approvals data, suggest that borrower appetite may be starting to wane.

Chart 2: Approvals for house purchase

Market commentary Sep 2014 appro

Source: Bank of England


Some of this may reflect the implementation of the Mortgage Market Review. 

But changes in the geographic profile of the housing market, and in particular the softer tone of the London market, are also likely to be influential.

Looking ahead, we do not expect any short-term impact arising from the decision of HM Treasury to consult on the proposed regulation of the consumer-oriented portion of buy-to-let lending, as this would only apply from early 2016 onwards. 

Meanwhile, the Financial Policy Committee (FPC) has its first annual opportunity to review Help to Buy metrics when it meets later this month.

Chart 3: Help to Buy completions, 3-month moving averages

Market commentary Sep 2014 htb

Source: HM Treasury, CLG


According to official statistics published a few weeks ago, the total volume of business written under the Help to Buy schemes has been relatively restrained, accounting for about 10% of overall mortgage transactions, in recent months.

And as we have pointed out, Help to Buy appears reasonably well-targeted, with the vast majority of transactions being for moderately-priced properties, purchased by first-time buyers and away from London.

These features, together with signs of a general slowing in the overall housing market, would seem to provide a relatively benign backdrop to the FPC's review.