Mortgage approvals fall as Brexit vote cools housing market

Soon after the EU referendum result, uncertainty engulfed the UK. With no way of knowing what the future may hold, the public are slowly but surely noticing the impact. While some sectors may benefit from Brexit in the future, currently, Britain’s insecurities are on show to the world. In our latest article, Acumen uncovers the impact that Brexit has had on the housing market and what Brexit means for mortgages.

Mortgage lending went up to GBP 3.2 billion from an upwardly revised GBP 3.1 billion in August. Mortgage approvals in the United Kingdom averaged 85.93 Thousand from 1986 until 2016, reaching an all time high of 151.80 Thousand in May of 1988 and a record low of 26.69 Thousand in November of 2008. Mortgage Approvals in the United Kingdom is reported by the Bank of England.

The impact of public spending on mortgage approvals

According to the Bank of England, the approval of a mortgage is one of the earliest indications of housing market activity but the number of loans approved recently appeared to fall to its lowest point since November 2014.

August saw an unprecedented low, with just 60,058 approvals in the month. However, this was revised upward to 60,984. So although it initially appeared that there was a substantial drop from 60,925 in July, in fact the final number saw a small increase. Not only that, it was an increase on the market expectations of 61,500. Nevertheless, it was still below the average of 64,841 over the previous six months.

Many believe there is a correlation between Brexit and the housing marketing, so mortgage approvals is a reflection of public spending and arguably the public mood. Since the EU Referendum, unsecured spending hasn’t eased and people are frequently using credit cards and borrowing money. Perhaps it is because there is a sense that the economy is not as badly wounded following the “Leave” vote as was predicted by the “Remain” campaign?

Feeling the financial pressure

It does seem that the impact of Brexit isn’t a huge consideration for consumers and in August consumer credit rose by £1.57bn, exceeding economists’ suggested £1.4bn increase. However, irresponsible spending has a direct effect on individuals when they ask to borrow money from the bank, making unsecured spending even riskier.

Howard Archer, economist at consultancy HIS Global Insight stated “consumers were clearly prepared to continue borrowing and spending in August.” However, he went on to warn of the dangers of unsecured spending, noting that households will start to feel pressure from inflation and a weak job market.

Here at Acumen we are increasingly warning that inflation will rear its head again. In fact, there is evidence that it is already beginning to have an impact and we do think that it is important to factor that into plans when clients are looking at their mortgages, their spending habits and their investments.

Forecast for the next three months

“We suspect that the fundamentals for consumers will become less favourable over the coming months, with purchasing power likely diminishing and the labour market softening” Archer said. “On the one hand, this may make people more cautious over borrowing, but on the other hand, it may increase the need for some people to borrow.”

Martin Beck, senior economic advisor to the EY Item Club explains what Brexit means for mortgaging, stating that the fall in mortgage approvals won’t be entirely down to the Brexit vote. “Stripping out the extent to which this is a consequence of post-EU referendum uncertainty, as opposed to other factors, including tax rises on buy-to-let properties earlier this year and ever more expensive housing, is problematic”.

Looking to the future, a recent report from the Royal Institution of Chartered Surveyors illustrates, for the first time since April, house prices are suspected to increase over the next three months, illustrating an increased confidence in the housing market for the final months of the year.

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