finance

Stamp duty holiday ‘stampede’ drives soaring UK mortgage market


A “mad stampede” to buy houses before the stamp duty holiday ends drove UK mortgage approvals in October to the highest level since 2007, despite depressed economic activity and the risk of rising unemployment.

Approvals for home purchases jumped to 97,500 in October, the most since September 2007. The figure was also 33 per cent higher than approvals in February 2020 — before the pandemic, and about 10 times higher than the trough of 9,400 in May, Bank of England data showed on Monday.

The figure was also much higher than the 84,500 expected by economists polled by Reuters.

Experts expect the strength of the property market to continue until March 2021, the end of the government’s nine-month holiday on paying stamp duty on the first £500,000 of home and land purchases in England and Northern Ireland.

Andrew Montlake, managing director at the UK-wide mortgage broker, Coreco, said that the number of approvals in October reflected “the mad stampede to buy before the stamp duty holiday ends”.

Line chart UK mortgage approvals since 2010 (‘000)

Hina Bhudia, partner at Knight Frank Finance, said: “With the clock ticking down to the end of the stamp duty holiday in March, the banks are bracing themselves for a wave of new applications as buyers try to squeeze deals through the system ahead of the deadline.”

The strength in the property market continued to be supported by low interest rates.

According to the BoE, the “effective” interest rates — the actual interest rates paid — on newly drawn mortgages remain below pre-pandemic levels of 1.85 per cent in January, despite a 4 basis points monthly uptick to 1.78 per cent in October.

Nitesh Patel, strategic economist for the Yorkshire Building Society, said the housing market continued “to defy economic logic” with strong data “despite challenging economic conditions caused by the global Covid-19 pandemic and uncertainty over the UK’s trading deal with the EU”.

However, Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, argued that without further government support, a weakened labour market and higher mortgage rates “point to lower levels of [housing] activity next year and a partial reversal of this year’s surge in house prices”.

Beyond the property market, signs of weakening in the consumer sector are becoming more visible, reflecting a slowdown in the economic recovery as restrictions on much activity remain tight.

Household consumer credit “remained weak,” the BoE stated, with net repayments of £600m in October suggesting that the tiered restrictions caused consumers to rein in spending again.

The weakness was driven by a net repayment on credit cards of £400m. Total outstanding consumer credit was down 8.6 per cent in October compared with February, before the Covid-19 outbreak. In January, by comparison, net consumer credit grew by almost £1bn.

Households also started to hoard cash again as they did during the national lockdown in the spring. In October, households’ bank deposits increased £12.3bn, the largest amount since May.



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