UK mortgage data shows consumers continue to hold onto their money
As the distortions caused by the end of the temporary increase in stamp duty thresholds fade away, mortgage activity is running at a slightly higher level than last year’s average, says professional services firm EY.
But with mortgage rates likely to edge up in response to higher swap rates and affordability already stretched, any further pickup in housing activity is likely to be modest.
The group noted that July’s pickup in net unsecured lending was solely due to a fall in repayments. The decline in gross lending suggests that Friday’s delayed retail sales data could come in weak, while the combination of persistent consumer caution and real household income growth slowing is consistent with consumer spending continuing to rise at an underwhelming pace.
“Mortgage approvals for house purchases rose to a six-month high of 65,352 in July, as the distortions caused by March’s end to the temporary increase in stamp duty thresholds continued to fade. Net lending slipped to £4.5 billion in July, down from £5.4 billion in June, but this was due to higher repayments, and gross lending continued to recover,” said Matt Swannell (Chief Economic Advisor to the EY ITEM Club).
“July’s outturn for approvals was some way above the 2024 average of 62,900, reflecting the gradual decline in quoted mortgage rates over the past 18 months. However, the Monetary Policy Committee’s (MPC) more hawkish messaging in its August meeting has caused swap rates to rise in recent weeks, and this is likely to result in quoted mortgage rates for two and five-year loans edging up.”
Given that mortgage affordability is already stretched relative to long-run averages, this suggests that the recovery in activity is likely to remain gradual, Swannell said.
“On the unsecured side, net lending rose to £1.6 billion in July, from £1.5 billion in June, but this reflected a fall in repayments, with gross lending edging down to a three-month low.
“This suggests that Friday’s delayed retail sales release is likely to report a weak number for total sales. Relatively muted gross lending flows are also indicative of consumers remaining relatively cautious. Given that real household income growth is slowing, this supports our view that consumer spending growth is likely to remain stuck in a low gear.”
