UK mortgage approvals jumped to near pre-pandemic levels in July, while household borrowing rose for the first time in four months and bank deposits normalised, suggesting that consumers resumed spending after hoarding cash during the lockdown.
The number of mortgages approved rose to 66,300 in July from 39,900 in June. The figure is well above the 54,800 forecast by economists polled by Reuters and more than seven times higher than the trough of 9,300 in May.
The July number was 10 per cent below the February level of 73,700 but broadly in line with the pre-pandemic annual average.
The jump is partially the result of the government’s stamp duty holiday which began in July and runs to the end of March 2021. The housing market also benefited from the pent-up demand released with the end of the lockdown, when viewings were banned.
“The growth in application volumes, fuelled by the stamp duty holiday and pent up demand following lockdown, continues to have a tangible impact with more successful applications,” said David Ross, managing director of the mortgage insight company Hometrack.
Data from the Bank of England also showed that consumer lending returned to growth in July, while household deposits rose at a slower rate than in previous months. Since the pandemic started households have hoarded cash in banks due to limited spending opportunities and fear of infection.
Economists and policymakers closely watch spending and saving data as high household deposits threaten the pace of the economic recovery and prompt government measures to spend — such as the “eat out to help out” scheme — rather than policy aimed at sustaining incomes.
In July, households’ deposits increased by £7.0bn, down from an increase of £11.7bn in June, and below an average £19.1bn between March and May. The figure is now only slightly stronger than the pre-pandemic period: in the six months to February 2020 household deposits rose by an average of £5.0bn a month.
At the same time, households’ consumer credit borrowing rose by £1.2bn in July, the first increase after four months of net repayments.
“July’s money and credit data confirm the resurgence in the housing market while recovering consumer credit suggests that households’ appetite for big ticket purchases is returning,” said Andrew Wishart, UK economist at Capital Economics, a consultancy.
However, economists are concerned that the rebound in the property sector and the improved credit data could be shortlived if the end of the job support scheme leads to a rise in unemployment and a resulting fall in income.
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“We still think that the realisation of more job losses after the furlough scheme started to be wound up in August will cause the recovery to slow,” Mr Wishart added.
Howard Archer, chief economic adviser at EY Item Club, warned that the housing market “is likely to come under pressure over the final months of 2020 and start of 2021 when there is likely to be a marked rise in unemployment”.
Separate data from IHS Markit confirmed that UK manufacturing activity, as measured by its purchasing managers’ index, rose at the fastest pace in six years in August, although marginally lower than the initial estimates, as more factories reopened.
However, the rise in factory activity was not enough to prevent job cuts, with the employment purchasing managers’ index recording one of the steepest declines in more than a decade.