Rising house prices fail to temper buyer appetites as mortgage approvals hit two-year high

As house prices continue to rise and the latest figures from Markit Economics show residential housebuilding slowed to the lowest level in over two-and-a-half years, you could be forgiven for thinking that house buyers would take a breather after years of rising prices and wait-and-see if house price growth might slow, or even disappear altogether!

Well, data from the Bank of England shows that is absolutely not the case as mortgage approvals rose to a two-year high of 74,581 in January from 71,335 in December.

While mortgage approvals are exactly what they say they are – the number of mortgages that have been approved over a given period - not mortgages that have been signed and fully agreed, they consistently prove to be a reliable forward indicator of housing market activity. And, when approvals rise, house prices are rarely far behind.

However, this increased house-buying appetite isn’t a simple case of potential home-buyers and movers taking advantage of still low mortgage interest rates. While that undoubtedly accounts for part of the sharp rise in approvals, the British Bankers Association said that buy-to-let investors are the main driving force behind the upward momentum they’ve reported in their own data. The BBA’s figures – which are less comprehensive but just as relevant – showed that mortgage approvals in January were 33% higher than a year ago.

“The start of the year has seen a significant rise in mortgage borrowing. It seems that this has been driven, in part, by borrowers looking to get ahead of the increases in stamp duty for buy-to-let and second home buyers scheduled to come into effect in April,” The BBA’s chief economist Richard Woolhouse said in a press release.

This new data showing an upturn in housing market activity at the start of the year appears to suggest speculation following Chancellor of the Exchequer George Osborne’s announcement on new stamp duty rules for second homes that investors would become more active ahead of the rules being introduced in April is being borne out.
The interesting part for economists and market watchers now is how things will develop in April and beyond. Will activity slow sharply or will it remain driven by first-time buyers and home-movers who should have more opportunity to make a purchase when investors take a breather as they are expected to?

Another side to the increased interest of buy-to-let investors is the upcoming in-out European Union referendum which will take place on June 23rd. If the UK does opt to leave the EU, how might that affect demand for homes in the UK, economic growth and monetary policy?

These are all important and interesting questions, but without the benefit of a crystal ball or foresight, we’ll just have to monitor the situation and wait-and-see how things turn out.

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