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Market commentary September 2015


Published: 17 September 2015 | Author: Bob Pannell

  • Activity levels in the housing and mortgage markets have picked up over the summer months.
  • Mortgage lending is currently enjoying its best spell since 2008.  Our forward estimate is that gross mortgage lending totalled £20 billion in August, 12% up on a year ago.
  • First-time buyer and mover numbers are stronger than a year ago, although these gains are more limited than for buy to let.

UK economy

Prospects for the UK economy continue to look relatively benign, despite the fact that developments in China have added to global downside risks.

In the absence of near-term inflationary pressures - the consumer prices index was unchanged in the year to August - monetary policy remains on hold. At its September meeting, the Bank of England kept interest rates at their record low of 0.5 per cent, for the 66th consecutive month, and the latest of the Monetary Policy Committee (MPC) minutes confirm that there is still only one MPC member voting for a rise.

While expectations of UK interest rate increases have moved further into 2016 over recent weeks, financial market views will be conditioned by the timing of Federal Reserve action to raise US interest rates and any subsequent market impacts. Amid such uncertainty, Bank officials continue to stress that policy rates will eventually rise in a gradual fashion and to a limited extent.

Labour market statistics for the three months to July show a slowdown in jobs growth, with the unemployment rate of 5.5% unchanged compared with three months earlier. Earnings growth, meanwhile, continues to be relatively strong - up 2.9% on a year ago and the fastest rate since 2009.

Housing market

After idling in neutral for some while, the housing market appears to have moved into gear in recent months.

Buoyed by the benign economic backdrop and attractive mortgage deals, the latest survey by the Royal Institution of Chartered Surveyors (RICS) shows new buyer enquiries in August were up for the fifth month in a row.

With new vendor instructions in almost continuous decline over the past year, according to RICS, the ongoing imbalance between demand and supply has renewed the upwards momentum in house prices, but prompted only a limited pick-up in sales activity.

Looking at the HM Revenue and Customs (HMRC) metric, property transactions have shown a stronger tone in recent months.

The rolling 12-month total is within a whisker of its 6-year peak, but the absolute level of transactions - about 1.2 million - remains fairly subdued.

Chart 1: Property transactions and house purchase approvals, annual totals, 000s

20150916 - Market commentary Sep 2015 chart 1

Source: HRMC and Bank of England

Download data

Despite the fact that cash purchases continue to feature prominently - accounting for 36% of overall transactions, mortgage lending has looked a little more lively of late.

Our forward estimate is that gross mortgage lending totalled £20 billion in August. While 8% lower than in July, this was 12% higher than a year ago - the third month in a row that there has been a sharp pick-up year on year.

Although seasonal factors tend to flatter lending figures during the summer months, the underlying seasonally adjusted picture in August is likely to have been the strongest for seven years.

While some of this improvement reflects an increase in typical loan sizes associated with firmer house prices, business volumes have strengthened too.

According to the Bank of England, approvals for house purchase have shown a more or less continuous improvement since late last year. July’s total of nearly 69,000 was the strongest performance since early 2014 but annual totals are still a little soft (see Chart 1).

Remortgage approvals have been improving modestly for more than a year. More than 38,000 remortgages were approved in July. Although such levels are not dramatic, recent months nevertheless represent the strongest showing for remortgages in more than 6 years.

It is important to bear in mind that the Bank of England approvals data covers buy to let as well as regulated mortgage lending.

As our monthly figures makes clear, buy to let house purchase and remortgage activity, are recovering more strongly than their home-owner counterparts.

Chart 2: Buy to let lending, annual totals, £ billion

20150916 - Market commentary Sep 2015 chart 2

Source: CML Economics

Note: Figures for 2015 show the 12 month total ending in July

Download data

While regulated loans for house purchase - both first-time buyers and movers - have posted modest gains in June and July, the rolling 12-month totals remain a little off their 2014 highs. This fits with our view that affordability pressures risk limiting the upside potential in the owner-occupied space.