How Durable are Better UK Housing Market Signs?
Amid some mixed remarks from one the MPC hawks, the BoE will be noting more positive housing market signs. The latest RICS survey very much points to a clear pic-up in housing demand, something that chimes with the results in the just-published BoE Credit Conditions Survey (CCS), which also suggest that banks seem more than willing to meet that demand by increasing secured credit supply. But while this point to support for house prices (Figure 1), such updates are volatile, with perhaps the more notable feature of both surveys being the more upbeat housing market and overall economic outlook they encompass. But it is also notable that the CCS does not see a similar improved economic outlook when it assesses the market for both unsecured and company lending. In addition with much of the improved housing demand led by a survey in applications for remortgaging, the question is whether the recent rise in market interest rates may forestall any budding housing recovery.
Figure 1: Clear Bounce in Volatile Mortgage Demand
Source, BoE CCS
UK lenders reported that the availability of secured credit to households increased in the three months to end-February 2024 and was expected to increase over the next three months to end-May. This came, however, alongside no material change in credit supply for either unsecured lending or on the company side. What was also evident however, was a marked ump in demand for secured lending for house purchase and re-mortgaging increased in Q1, and both were expected to increase in Q2. Indeed, the re-mortgaging was marked and we think has been sparked by the recent fall in mortgage rates. If so, all this means is that homeowners are trying to minimize the increase I n debt servicing costs they have been facing amid the rise in Bank Rate.
The question is also whether the fall in mortgage rates will be sustained amid the bounce in market rates. In this regard we wonder whether the CCS implied improved outlook for the economy and the housing market specifically is durable, not least as those same banks more no mention of an improved economic outlook when assessing unsecured and company lending. If so, the clear jump in mortgage demand, however, positive it may be for house prices, may just be more of the very familiar and recent volatility.