UK housing market continues to ‘show signs of underlying weakness’

The number of mortgages approved by British banks rose last month from a 19-month low in August, according to fresh data released by the British Bankers’ Association (BBA).

BBA members approved 38,252 mortgages for house purchase in September, but while this was up from 37,241 in August, the industry figures show that lending was actually down 15% compared with the corresponding month last year.

“Mortgage approvals picked up slightly this month but the housing market continues to shows signs of underlying weakness,” said Rebecca Harding, chief economist at the BBA.

The data also revealed that consumer lending increased at the fastest rate since December 2006, driven by strong demand for credit cards, which saw a net £175m hike in lending in September.

“Consumers are increasingly using short-term borrowing to take advantage of record-low interest rates. This trend has accelerated since the Bank of England cut rates in August,” Harding added.

But there are “rays of light in BBA lending figures”, according to Doug Crawford, CEO of My Home Move.

He commented: “There has been a lot of doom and gloom about the housing market, but there are rays of light in today’s BBA lending figures. Looking at 2016 to date compared to the same period in 2015, approvals are down only 4% and 2015 was an unusually busy year.

“Going back one step, further mortgage approvals this year have closely tracked those of 2014, with the only exception being July – the immediate aftermath of the Brexit referendum result.” 

Crawford believes that some market commentators have “fallen into the trap” of looking at the year-on-year double digit decline in new lending in September and “rushed to the conclusion that the housing market is underperforming”, but he insisted that “simplistic comparisons” mask a “very complicated picture”.

He continued: “The reality of recent years is that it is not clear what ‘normal’ looks like when trying to benchmark the performance of the housing market. Taking a broader perspective and looking at the first nine months of the previous two years reveals that the number of approvals is only slightly behind 2015 and 2014 – which were both incredibly strong years for housing sales.

“While the performance that this highlights might not be spectacular, it is steady and reassuring – especially in the context of the shock caused by the Brexit referendum result and the forecasts of many that the housing market would freeze to a standstill. Instead, we are seeing people getting on with their everyday lives including buying new homes to live in.”

Given that the UK housing market continues to face the same issues of undersupply that it has done for many years, Crawford believes that in the medium to long term, strong fundamentals will “continue to drive a prosperous housing market” as consumers get on with their everyday lives.