Mortgage Loan Approvals Jump More Than 65 Per Cent In July, Ahead Of Expectations

Summary

• The mortgage approval numbers have been rising sharply month on month since May during the year 2020, indicating a sharp recovery in the UK’s housing sector.
• The massive increase in the numbers is ahead of expectations and is being purported to be the result of the government stamp duty reduction measure announce on 8 July 2020.
• Experts, however, warn that this growth might go down sharply in coming weeks as the furloughing scheme is withdrawn in October end, which could lead to a rise in the unemployment numbers.

Continuing with its performance over the three months of May to July 2020, the housing mortgage approval numbers in the UK have yet again surpassed expectations for the month of July. The total number of approvals for July 2020 were recorded at 66,300. This figure was higher by 65 per cent as compared to the earlier month of June 2020 that saw 40,000 mortgages.

The economic experts had expected this figure to touch 55,000 for July 2020, so the actual numbers are ahead of expectations. However, this is still lower than 74,000 approvals registered for the pre-corona month of February 2020.

In absolute terms, the amount of money lent in July 2020 stood at £2.7 billion compared to £2.4 billion during the month of June, depicting a growth of 12.5 per cent.

According to latest government estimates, there is another good news. The consumer borrowing for July 2020 rose to £1.2 billion, which was slightly higher than the corresponding value achieved during February 2020.

Both of the above lending figures point towards an improving state of the economy.

What does a rise in mortgage approval signify?

Under normal circumstances, an increase in the mortgage approval numbers indicates that people are more upbeat about the economy’s growth, their own job security, and are confident of paying back their loans. A higher number of mortgage approvals also signals that more money is going to be invested in the British housing sector in coming quarters which will also ensure higher employment creation opportunities in the sector. Also given the large size of the housing and construction sector, its growth would also have a cascading effect on the prospects of other related sectors.

The enhances mortgage definitely reveal the highly resilient nature of the British economy.

Also Read: Housing market trends: Boom continues with £37 billion summer sales

Stamp duty holiday

The housing industry is one of the largest employers in the country and has a significant number of its workforce cooling their heels under the benefit of the governments furloughing scheme. Should there be a weakness in the revival of this industry, the effect of that on the unemployment situation in the country would be catastrophic.

The UK government had lowered the stamp duty land tax will on sale of residential properties priced below £500,000 for the period of 8 July 2020 to 31 March 2021. This tax holiday is projected to raise the house prices across the UK by 0.5 per cent and 25,000 additional housing sales during 2020, according to government estimates.

However, the mortgage numbers suggest that this government’s housing sale projections could easily get surpassed for the year 2020.

Stamp duty is a levy charged by the government of the transaction value of a property sold in the United Kingdom. The burden of this levy which ultimately falls on the buyer, is imposed progressively according to the increasing value of the property.

In fact, the housing prices have already started to rise. According to Nationwide Building Society estimates, the UK house prices moved up by roughly 2 per cent during the months of July and August 2020 on a month-on-month basis. For the months of May and June 2020, these prices had fallen by close to 1.5 per cent.

With pent up demand coming through, the stamp duty stimulus package will prompt more and more people to book houses to save money before the scheme ends in March 2021. Behavioral changes are also expected, as people re-evaluate their housing needs and shift to a location of their choice, especially in a scenario where work from culture is rising and is here to stay for many organisations.

Also Read: Has Sunak’s Stamp Duty Holiday Led to The Upbeat Demand Scenario for The UK Property Market?

The second half of the year 2020 will most likely see the government launching a massive inoculation drive to vaccinate as many Britons against the deadly coronavirus as possible. The second half is also the festival half of the year when people are more inclined to come out of their houses and spend more. Both of these events have a chance to significantly improve the market for new houses.

The likely increase in the unemployment rates in the country post the withdrawal of the furloughing scheme may not have a very sharp impact on the housing sectors as is being feared by many, but even if it does, it may not be sufficient to dampen the current jubilant mood in the market. The housing market in the country will continue to grow and create jobs well into 2021.

Outlook

The construction sector has been the leader among all other industries in fighting its way through the bad economic conditions and actually reaching an expansionary phase. This momentum of the industry needs to be supported as it could lead to the recovery of many other industries which are directly related as a chain effect. The construction sector is also one of the largest employers of skilled and non-skilled workmen in the country. A sustainable revival would ensure that more and more people are brought out of furlough scheme. The problem of supply chain disruptions is a major problem for the industry and needs to be resolved at the earliest. Finally, the sentiments of the average British consumer would improve when an all-round recovery across industries is witnessed. This will give a sense of hope and assurance of job security and livelihood protection to people, who would be encouraged then to come out and spend more.