Mortgage approvals leapt in August to their highest monthly level for nearly 13 years, driven by government help during the pandemic and a rush to buy homes outside Britain’s large urban centres.
Ultra-low borrowing rates and the government’s stamp duty holiday on home purchases, due to expire next March, helped to push mortgage approvals from 66,300 in July to 84,700 in August, according to Bank of England figures, their highest level since October 2007.
Analysts said the dramatic rise in approvals had upended what was usually the quietest month in the property calendar. In previous years, August would be subdued while most of the nation spent time on holiday.
The property market has been particularly volatile since the coronavirus crisis hit the UK, with mortgage approvals in May hitting their lowest level since the early 1990s. And despite the surge in August, approvals so far this year are down on the same period in 2019 at 418,000 compared with 524,000.
However the pandemic, which has forced millions of people to work from home, has spurred many to think about how much space they need and reconsider living in densely populated urban areas.
A survey by the property website Rightmove showed the lockdown meant people spent more time indoors, and a dash for larger homes and gardens continued to push up prices across the country in September, though not in London and other large cities.
Jeremy Leaf, the north London estate agent and a former chairman of the Rics residential arm, said the August figures showed the impact of the stamp duty change in July had “transformed the market which had been in the doldrums post-Covid”.
He said there were “a few signs of that upsurge running out of steam” following concerns over the spread of the virus.He believes price rises will remain subdued as extra sale listings met demand and buyers, nervous about the path of the pandemic, refusing to overpay.
Experts polled by Reuters forecast an average rise in prices of just 2% this year once the subdued London market was taken into account and a stagnation in the market next year after the stamp duty holiday ends.
However, the Bank of England governor, Andrew Bailey, said he did not expect a sharp downturn in house prices once stamp duty is reintroduced. Speaking at an online event hosted by Queen’s University Belfast, he said he would not be surprised to see a slight fall in transactions, however.
Property market consultant Henry Pryor summed up the growing wariness about a prolonged boom, when he said: “We may well run out of a pool of buyers prepared and able to move for lifestyle reasons as the flood of negative headlines about the true cost of the pandemic to individuals and the nation starts to become clearer.”
Halifax, which is one of the UK’s largest mortgage lenders, said the average price of a property jumped for the first time in August above £245,000, but cautioned such strong price growth was unlikely to continue while unemployment increased and household earnings remained flat.
Thomas Pugh, a UK economist at the consultancy Capital Economics, said while many wealthier property buyers remained keen to buy, the BoE figures showed consumer credit only rose by £0.3bn, when most economists had forecast a rise of £1.5bn, “suggesting that consumers are becoming wary again about financing big ticket purchases with credit”.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said Google Trends data implied that visitor numbers to the three main property websites had fallen 5% so far in September compared with August.
Recent moves by lenders to restrict the sale of high-loan-to-value mortgage products, particularly affecting first-time buyers, will also take its toll on sales and prices, he said.
“The outlook for a further drop in employment also will weigh on the housing market, though with home-ownership having narrowed to a wealthier segment of the population over the last decade, job losses won’t have as devastating an impact on the market as they did in 2008,” he said.
Nevertheless, some economists have warned that many low-income mortgage payers could find themselves in financial difficulty once the furlough scheme ends and an expected rise in unemployment takes hold.
The Centre for Policy Studies, a free market thinktank, said the government should move quickly to protect home ownership with higher subsidies, especially for families on low incomes.
In a joint statement with the welfare charity the Joseph Rowntree Foundation, it said: “The pandemic has had a shattering impact on many families’ livelihoods. Claims for universal credit have shot up, and there will be more pain to come as the furlough scheme is wound down, which coincides with the end of the mortgage holiday arrangements.
“Half of those with a mortgage who have moved onto Universal Credit since March have needed to take up a mortgage holiday.”