More evidence housing market has lost its momentum

Figures released today by the Bank of England suggest households’ demand for borrowing remained weak in September. Net lending secured on dwellings (i.e. mortgage borrowing) increased by only £0.1 billion in the month and was just 0.8 per cent higher than in September 2009.

Figures released today by the Bank of England suggest households’ demand for borrowing remained weak in September. Net lending secured on dwellings (i.e. mortgage borrowing) increased by only £0.1 billion in the month and was just 0.8 per cent higher than in September 2009. This annual growth rate has been stuck at just under one per cent for the last 15 months.

Meanwhile, the number of loans approved for house purchase was 47,474 – just below its average in the first eight months of the year, but 15 per cent down on September 2009. This is the latest in a string of indicators that suggest the momentum has gone out the housing market in recent months.

It follows yesterday’s news from the Nationwide that house prices fell by 0.7 per cent in October and have fallen in three of the last four months. Prices are now only 1.4 per cent higher than at the end of 2009 and if they fall in November and December at the same pace as in October, they will not have increased at all during 2010.

Other lending to households – in the form of personal loans and credit cards – is also growing at a sluggish, sub-1 per cent, annual pace.

In the medium-term, the fact that households are reluctant to take on more debt can only be seen as a positive development. Over the decade to 2007, UK households took on an enormous amount of extra debt (its ratio to personal disposable income increasing from around 100 to 170 per cent) and this helped fuel a housing bubble, which – when it burst – added to the depth of the recent recession.

But in the short-term context, with the government being determined to cut back its own spending and borrowing and rely more on private sector demand as a source of growth, these figures are a little worrying.

They suggest consumer spending will continue to increase at only a modest pace (especially when next year’s increases in VAT and national insurance contributions are taken into account), putting even more onus on private investment spending and exports to boost the growth of output and jobs. The Office for Budget Responsibility thinks this is exactly what will happen. Others are more sceptical; I have my own doubts about the OBR’s forecast, but I hope they are misplaced.

5 Responses to “More evidence housing market has lost its momentum”

  1. barb milne

    "@leftfootfwd: More evidence housing market has lost its momentum: //bit.ly/aaXPwb writes @ippr's Tony Dolphin"@insomnijac

  2. Phil Randal

    RT @leftfootfwd: More evidence housing market has lost its momentum: //bit.ly/aaXPwb writes @ippr's Tony Dolphin

  3. Shlomo Pines

    More evidence housing market has lost its momentum: //bit.ly/aaXPwb writes @ippr's Tony Dolphin (via @leftfootfwd)

  4. Ron Effot

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  5. Hamid Eshani

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