Experts expect the strength of the property market to continue until March 2021, the end of the government’s 9-month holiday on paying stamp duty
Experts expect the strength of house market to continue until March 2021, the end of the government’s nine-month holiday on paying stamp duty in England and Northern Ireland © Simon Dawson/Bloomberg

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A “mad stampede” to buy houses before the stamp duty holiday ends drove UK mortgage approvals in October to the highest level since 2007, defying surging unemployment and an economic downturn.

Approvals for home purchases jumped to 97,500 in October, the most since September 2007. The figure was 33 per cent higher than approvals in February 2020, before the pandemic, and about 10 times higher than the trough of 9,400 in May, according to Bank of England data.

The figure was also much higher than the 84,500 expected by economists polled by Reuters.

Experts expect the strength of the property market to continue until March 2021, when the government’s nine-month holiday ends on paying stamp duty on the first £500,000 of home and land purchases in England and Northern Ireland.

Andrew Montlake, managing director at the UK-wide mortgage broker Coreco, said the number of approvals in October reflected “the mad stampede”.

Line chart UK mortgage approvals since 2010 (‘000)

Demand in the property market has been supported by ultra-low interest rates. According to the BoE, the “effective” interest rates — the actual interest rates paid — on newly drawn mortgages continue to be below their pre-pandemic level: at the start of the year the average rate was 1.85 per cent and in October it was 1.78 per cent, having climbed four basis points from September.

Nitesh Patel, strategic economist for Yorkshire Building Society, said the housing market continued “to defy economic logic” and was surging “despite challenging economic conditions caused by the global Covid-19 pandemic and uncertainty over the UK’s trading deal with the EU”.

However, Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said that without further government support, a weakened labour market and higher mortgage rates were pointing to “lower levels of [housing] activity next year and a partial reversal of this year’s surge in house prices”.

Banks are preparing for a wave of new mortgage applications “as buyers try to squeeze deals through the system ahead of the [March] deadline”, said Hina Bhudia, partner at Knight Frank Finance.

Beyond the property market, signs of weakening in the consumer sector are becoming more visible, reflecting a slowdown in the economic recovery, with restrictions on much activity continuing to be tight.

Household consumer credit “remained weak”, the BoE said, with net repayments of £600m in October suggesting that tiered restrictions, introduced by the government to control the spread of the virus, was causing consumers to rein in spending.

The weakness was driven by a net repayment on credit cards of £400m. Total outstanding consumer credit was down 8.6 per cent in October compared with February, before the Covid-19 outbreak. In January, by comparison, net consumer credit grew by almost £1bn.

Households also started to hoard cash again as they did during the national lockdown in the spring. In October, households’ bank deposits increased £12.3bn, the largest amount since May.

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