(Bloomberg) — UK lenders gave the green light to the most mortgages in 17 months, an indication of growing momentum in the property market despite a small dip in prices last month.
Bank of England data showed banks and building societies approved 60,383 loans for house purchase in February, up from 56,087 the previous month. That contrasted with an unexpected 0.2% drop in house prices in March after two consecutive increases in data collected by the lender Nationwide Building Society.
Mortgage approvals are typically a leading indicator for transactions and prices, and the latest data support evidence that buyers are returning to the market after a stagnant 2023. Mortgage rates have cooled from the 15-year highs seen last summer, and household incomes are rising in real terms again.
“As long as the labor market holds up relatively well, as we expect, and interest rates don’t increase again, as we expect, then I don’t think we’re likely to see house prices fall significantly,” Robert Gardner, Nationwide’s chief economist, said in an interview with Bloomberg Radio on Tuesday. “The picture remains one of a fairly subdued market, which reflects the fact that affordability is still pretty stretched.”
Data from lender Halifax on Friday may provide further clarity on the direction of prices. Rob Wood, chief UK economist at Pantheon Macroeconomics, said the approvals data suggests the Nationwide figures are a “blip” as “lower mortgage rates continue to revive the housing market.”
However, any housing market recovery may be tempered by borrowing costs remaining stuck at stubbornly high levels, meaning it is still difficult for many buyers to finance. The Bank of England is expected to hold off interest rate cuts until August after its quickest hiking cycle in decades to curb inflation. That has caused mortgage rates to creep higher again in recent months.
The “drag on activity from high interest rates continues to fade,” said Ashley Webb, UK economist at Capital Economics. He cautioned that mortgage approvals may “struggle to match February’s strength over the summer.”
“If we’re right in thinking that interest rates are cut in the summer (perhaps in June) and faster than most expect, mortgage lending will strengthen further towards the end of the year,” he said.
Nationwide’s data showed that the average cost of a home is now £261,142 ($327,590), 4.6% below the peak recorded in late 2022. Prices have now grown 1.6% from a year ago.
Prices in London rose 1.6% from a year ago, making it the best performing region in the south of England. Northern Ireland enjoyed a 4.6% surge, the strongest region in the survey.
The housing data was just part of the conflicting signals for the UK economy released on Tuesday:
- The manufacturing purchasing managers’ index edged into growth territory for the first time in 20 months. An upwardly revised second estimate climbed from 47.5 to 50.3 in March, just above the 50 threshold separating growth and contraction.
- Shop price inflation cooled to 1.3% in March, the lowest since December 2021, according to the British Retail Consortium. It said this was due to fierce competition among retailers, suggesting subdued consumer demand.
- The BOE also said that consumers took out £1.4 billion on unsecured credit such as credit cards in February, down from £1.8 billion the previous month.
What Bloomberg Economics Says …
“The UK housing market may have turned a corner, but the recovery ahead is likely to be bumpy. While more buyers have entered the market on expectations interest rates will soon fall, ongoing affordability issues will limit household buying power.”
—Niraj Shah, Bloomberg Economics. Click for the REACT.
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