Mortgage approvals at highest level since February 2017

Loans for house purchases rose to 42,989 in April from 40,564 in March; this marked a clear upside breakout of the 38,000-40,000 range that had previously largely held since the beginning of 2018.

April’s marked rise in mortgage approvals suggests that housing market activity may well have got at least some temporary support from the avoidance of a disruptive Brexit at the end of March. It may very well also be that the housing market has benefited from recent improved consumer purchasing power and robust employment growth.

“The housing market has been constrained for an extended period by overall challenging conditions – relatively limited consumer purchasing power (despite recent improvement) after an extended squeeze and fragile consumer confidence.

The overall UK picture has also been dragged down by the particularly poor performance in London and parts of the South East, which has recently shown signs of spreading to other parts of the South.

Howard Archer, chief economic advisor to the EY ITEM Club said: “The housing market has been constrained for an extended period by overall challenging conditions – relatively limited consumer purchasing power (despite recent improvement) after an extended squeeze and fragile consumer confidence. It should be noted that the overall national picture has been dragged down by the particularly poor performance in London and parts of the South East, which has recently shown signs of spreading to other parts of the South.

“While consumer purchasing power improved between mid-2018 and early-2019, it is still relatively limited compared to long-term norms (and actually suffered a relapse in March) after consumers faced a prolonged serious squeeze on purchasing power. Consequently, house prices are currently stretched relative to earnings. According to Halifax, the house price to earnings ratio was still as high as 5.68 in April after spiking to 5.73 in February (the highest level since November 2017) from 5.40 in January; this is well above the long-term (1983-2019) average of 4.27. 

“Additionally, housing market activity has been hampered by relatively fragile consumer confidence and limited willingness to engage in major transactions. Indeed, consumer confidence in April was only marginally above the five-and-a-half year low seen around the turn of the year, according to the GfK survey. Furthermore, Markit’s UK Household Finance Index showed consumers’ willingness to make major purchases - such as houses and cars - fell sharply in March to the lowest level since September 2017 and was at one of the lowest levels for five years. Caution over making major purchases is currently being magnified by heightened uncertainties over Brexit. Although the deadline for Brexit has now been extended from 29 March to a flexible 31 October, Markit’s Household Finance Index showed that consumer’s willingness to make major purchases weakened in May and was only slightly above March’s low.

“It is possible that the avoidance of a “no deal” Brexit at the end of March has provided some support to the housing market through easing some of the immediate uncertainty and concerns.

“However, we suspect any boost to the housing market from the avoidance of a disruptive Brexit at the end of March will prove limited in both size and length. Certainly, latest survey evidence on the housing market remains largely downbeat. Specifically, new buyer enquiries fell for a ninth month running in April and the rate of decline was still appreciable, albeit less than February’s peak drop level.”