UK finance has published its latest mortgage lending data estimating that overall gross mortgage lending in August was £24.2bn, of which £15.1bn was lent by high street banks. Accounting for seasonal factors, this figure is in the same ball park as monthly lending over the course of 2017 according to it’s latest lending figures.

House purchase approvals by the high street banks reached 41,807 in August, stronger than the monthly average of 41,133 over the last six months and 11% higher than the same time last year when the market was subdued following the referendum result. UK Finance data shows that consumer borrowing from high street banks slowed to 1.5% in August, down from 1.9% in July.

Commenting on the data, UK Finance’s senior economist Mohammad Jamei said: “Housing market activity is in Goldilocks territory, growing only modestly since the start of the year, though the mix of activity has shifted towards first-time buyers, away from buy-to-let and cash. There is also some rebalancing across regions, as activity picks up in the north of England, Wales and Scotland, away from London, the south east and east Anglia.

“Despite resilience in consumer spending, annual growth in consumer credit has been slowing over the last few months. Across the UK some households have opted to save a little less, whilst others have not increased their borrowing. Meanwhile there has been growth in business deposits as non-financial companies hold cashflow and reserves amidst broader uncertainty in their trading conditions.”

Housing market activity has been growing modestly since the start of the year. Overall activity resembles what we saw just over two years ago, in 2015.

The mix of activity under the aggregate figures has shifted though, so while property transactions have averaged just over 100,000 a month since the turn of the year, much of this is driven by first-time buyers, less so by cash and buy-to-let. This level of activity is not expected to change much in the short-term, as the leading indicator of activity – house purchase approvals – has now returned to where it was at the beginning of the year.

Table 1 – rolling 12-months sum of activity (thousands)

Property transactions First-time buyers Home movers Buy-to-let house purchase Cash (imputed)
July 2015

1206

303

356

108

439

July 2016

1288

329

381

129

448

July 2017

1205

356

361

75

413

2-year change

0%

17%

1%

-31%

-6%

The Bank of England’s Agents’ survey suggests part of the strength in first-time buyer activity is down to demand for new-build properties using the Help to Buy equity loan scheme. There are also several other government schemes aimed predominantly at first-time buyers, such as the Help to Buy ISA, that are no doubt helping boost their numbers.

Benefitting much less from government schemes, home movers have largely been treading water over the last few years. The shortage of homes on the market for sale has also meant that some would-be movers are struggling to find suitable homes, and so do not put their own homes up for sale.

In the buy-to-let space, government interventions coupled with regulation has led to a flat market with around 6,000 house purchases a month since April 2016, after the stamp duty change on second properties came into effect.

As well as a change in the type of activity, there is some evidence to show the regional mix has shifted, away from London, the south east and east Anglia, towards the north of England, Wales, and Scotland.

The common characteristic in this divergence is that regions which have typically been less affordable have shown signs of weaker activity, while regions which are relatively more affordable have been more buoyant. Respondents to the Royal Institution of Chartered Surveyors survey and the Bank’s survey reflected this shift in activity.

At a regional level, the difference in affordability (as measured by the typical income multiple for home owners) between the most and least affordable regions has diverged since 2013, with the gap doubling over this period.

This trend may reverse, and we may see some rebalancing, if the shift in activity is sustained. It’s also the case that sentiment and price expectations in regions where affordability is stretched has weakened or is negative.

Chart 1: Difference in home-owner affordability across regions in the UK

chart 1 mc

Source: UK Finance

Download data

On the remortgage side, strong competition and low funding costs has meant a growing number of home-owners are taking advantage of the near record low mortgage rates. We expect more home-owners to refinance in the coming months, as prospects of the first interest rate rise in over 10 years gains new impetus.

Buy-to-let remortgage activity had been growing until very recently but the number of loans made over the last 12 months has been lower compared with the 12 months preceding it. Tax changes that came into effect in April 2017 are likely to restrict the ability or willingness of landlords to re-leverage their portfolios.

Despite the shift in mix of activity, by buyer type and region, total mortgage lending has been stable, and was estimated to be £24.2 billion in August, of which £15.1 billion was lent by High Street Banks. If we adjust for seasonal factors, this figure would be £21.4 billion which is in the same ball park as monthly lending over the course of 2017.

While we won’t have the breakdown of August lending for some time yet, the drivers of lending are likely to be first-time buyers and home-owners remortgaging, as has been the case for in July. The picture in July is also similar to that of April, May, and June so a continuation doesn’t seem too unreasonable.

Looking ahead, we expect more of the same, though we anticipate the pace of growth to slow somewhat, dampened by a potentially more challenging economic outlook.