In the future, 2020 is likely to provide plenty of ammunition for quiz questions given the significant level of fluctuations that will be evident across all parts of the economy and all parts of society.
Indeed, students of economic theory, politics, sociology, psychology, medicine, you name it, may have whole chapters to read which are devoted to what happened this year, not just in the UK, but right across the world as a result of the COVID-19 pandemic and the various Government responses it elicited.
Take, the UK mortgage market, for example, and set in front of those students the recent data, perhaps without the date, initially asking them what might have caused such ups and downs. The most recent mortgage approval and lending data from the Bank of England shows the stark contrast in activity, both now and compared to during lockdown and pre-March.
As a starter, the latest approval data shows a positive kick forward, up to 66,300 in July, from 39,900 in June, and just 9,300 in May. However, this is still some way down on the 73,700 approved back in February.
The same could be said for both net and gross lending, with the former hitting £2.7bn in July, higher than June’s £2.4bn, but off the £4.2bn the market posted in February. July’s gross lending was £17.4bn compared to February’s level of £23.7bn.
You can perhaps see why there are mixed views on these statistics, mostly because while clearly going in the right direction since the almost total lockdown of April and May, they have some way to go to reach that much longed-for pre-lockdown ‘normality’.
And of course, there have been some fundamental boosts brought into play in order to get the numbers quickly up to those levels. The post-lockdown boost from consumers not being able to be active in the market, and the reductions to stamp duty, being two major ones. But how might the market continue to react and what is leading some commentators to suggest that an ongoing upward trajectory is not guaranteed?
Well, one of the obvious impacts will be what happens in the employment market, particularly now that furlough payments have been eased, and whether this feeds into greater levels of redundancies. Whatever you might wish to do house-wise, if your employment prospects have been damaged, or if the threat of unemployment is still a possibility, then you are likely to be putting those on hold at least until there is greater certainty.
Which neatly ties into the lending environment, and what lenders are having to get their collective heads around in terms of underwriting and satisfying themselves that they are not taking on too much risk which could quickly turn bad if large numbers of borrowers find themselves out of jobs and unable to meet their mortgage repayments.
That lack of economic certainty was always going to have an impact, and we’ve seen it certainly from a lending activity point of view, with some lenders withdrawing at higher LTV levels, or repricing, and making a far stronger play for more mainstream/vanilla borrowers. Competition is high at those lower LTV levels, and borrowers here should have their pick of the crop in terms of low rates. However that is clearly not the case for all borrowers, particularly those who want and need higher LTVs, and if lenders continue to focus on lower-risk customers this will undoubtedly feed through into approval numbers and net/gross lending.
Such a situation might well mean that some potential purchasers or remortgagors will have to take a ‘wait and see’ approach, and that the initial market charge we’ve seen in recent months might start to stabilise. There are clearly a lot of factors at play here and they will all have their say in the activity conversation.
What we can – currently – say however is that predictions of significant house price drops post-lockdown have not materialised. If anything prices have hardened which may well be tempting some would-be sellers into the market – the more supply of property we have for sale, the better. But this may also be putting some investor borrowers off if they feel they are buying near the top of the market.
These are the swings and roundabouts of housing market activity and we might all anticipate the ups and downs to continue for some time.
Whether severe increases in unemployment and a prolonged recession allow prices to maintain their current levels does remain to be seen. As I would tell all property practitioners and their clients, the UK housing market is like the UK weather – changeable at the drop of a hat. Bearing that in mind and ensuring your clients understand the reasons behind such changes, may well ensure a much smoother process for all.
Simon Jackson, Managing Director at SDL Surveying