Stamp duty holidays and house movements related to Covid are behind the boom in the mortgage market
The number of approvals for mortgages in the U.K. Driven by the government’s stamp duty holiday and buyers reassessing their housing situation during the coronavirus pandemic, it has risen to its highest level in 13 years.
Bank of England figures showed that the number of mortgages approved for home purchases by banks and building societies soared to 105,000 in November – the highest number since August 2007, the month immediately before queues formed outside Northern Rock branches at the beginning of the financial crisis.
The number of monthly approvals increased by 7,700 compared to October, Threadneedle Street said, representing a mortgage market boom during the month when rapid growth in Covid infections prompted the government to enforce a second national freeze in England.
During the first Covid freeze, mortgage loans plunged as the U.K. plunged into recession. The economy has entered its worst recession in 300 years, hitting a low in April 2020 of just £ 200 million.
In November, borrowing rose to £5.7 billion, up £1.2 billion from October.
After reaching a low of 9,400 in May, the number of new mortgage approvals – which provide a leading indicator of borrowing in the coming months as borrowers take up their mortgage offers – increased more than tenfold.
Despite the boom in mortgage approvals – which correlates with the last days of the mid-2000s housing bubble, when zero-rate mortgages were prevalent – analysts warn that there is an imminent rapid decline in operation.
In the U.K. The housing market boomed in 2020, and as individuals raced to take advantage of stamp duty exemptions and reassess their housing situation during the shutdown, home prices soared to a six-year high.
However, mortgage lenders and economists warn that the end of the stamp duty holiday in March and this year’s rising unemployment could cause a fall in home prices in 2021. The biggest mortgage lender in the United Kingdom, Halifax, predicts an annual fall of between 2 percent and 5 percent, while the Office for Budget Accountability, the economic forecaster of the government, is more negative, forecasting an 8 percent decline in rates.
Faced with the imminent slowdown, lenders have found it more difficult to purchase a home for buyers with smaller deposits – hitting first-time buyers hardest.
Samuel Tombs, UK chief economist at Pantheon Macroeconomics consultancy, said demand will remain high until the entry rate for paying stamp duty – the tax charged on property transactions – drops from £ 500,000 at present to £ 125,000.
In December, the number of visitors to one of the UK’s top three property websites was 22 percent higher than the pre-pandemic average, the same amount as in November. He said, “The mortgage market is heading for a hard landing,”
However, house prices are expected to increase again in 2022, according to economists, despite the fact that the cost of home ownership has become unaffordable for more and more individuals in recent years.
Although the end of the stamp duty vacation in March would obviously have an impact on transaction numbers, the effect will be reduced once the pandemic has reached its final stages, Tom Bill, head of UK residential research at property firm Knight Frank, said.
In the coming weeks, some buyers and sellers may hesitate, but as the year progresses, sentiment may eventually increase.