Mortgage approvals up to nine-month high in June but market remains limited

The data showed mortgage approvals for house purchases picked up for a third month running after approvals had earlier fallen to a 2018-low in March when already weak activity was likely hampered by the severe weather.

UK Finance said mortgage approvals rose to 40,541 in June from 39,541 in May, 38,509 in April and 37,893 in March. They were down 0.9 per cent year-on-year in June and were also 21.0 per cent below their long-term (1997-2018) average of 51,307.

Meanwhile, re-mortgaging was elevated in June as borrowers looked to lock in to attractive rates before a possible Bank of England interest rate in August.

While housing market activity has climbed off its 2018-lows, the impression remains that it is still struggling to really pick up a gear amid challenging conditions. We continue to suspect that a meaningful upturn will remain elusive over the coming months.

Analysts said the downside for house prices is being limited by a shortage of houses for sale, while high and currently rising employment is also supportive for the housing market while mortgage interest rates are at historically low levels and will remain so even if the Bank of England does hike rates modestly over the coming months.

Commenting on the latest data, the EY Item Club said it expects house price gains over 2018 will be limited to a modest 2 per cent, and prices to rise no more than 3 per cent in 2019.

It added that housing market activity is expected to remain weak as the extended squeeze on consumer purchasing power only gradually eases, confidence is relatively fragile and appreciable caution persists over engaging in major transactions.

Potential house buyers may also be concerned that they are likely to face further interest rate hikes over the coming months (we believe the Bank of England is more likely than not to raise interest rates from 0.50 per cent to 0.75 per cent in August). Furthermore, house prices are relatively expensive relative to incomes.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “While housing market activity has climbed off its 2018-lows, it is still finding it hard to gain traction in the face of still limited consumer purchasing power, fragile confidence and likely further gradual Bank of England interest rate rises over the coming months. There seems little evidence that the cutting of stamp duty for first-time buyers in last November’s budget has provided a significant boost to housing market activity.”

Mr archer added: “The abolition of stamp duty for first time buyers for properties costing up to £300,000 (and on the first £300,000 for properties costing up to £500,000) in last November’s budget may provide some limited support to housing market activity and prices.

“Even if ultimately successful, the Chancellor’s measures to boost house building in last November’s budget will take time to have a significant effect so are unlikely to influence house prices in the near term at least.”