UK Finance’s Household Finance Review for Q2 2020 shows the extent to which house purchase lending plummeted over the quarter as the housing market was suspended due to lockdown, with homemover activity hit most severely.
Following the first quarter, which showed flat year-on-year growth, lending turned immediately and sharply negative.
For Q2 overall, house purchase activity was down 48% compared to Q2 2019. Volumes in April were less than half those seen a year previously with a similar annual rate of contraction in May.
With the housing market partially reopening in May, June saw an easing of the rate of contraction, but activity remained considerably below the levels seen in June 2019.
Within the overall contraction, the heaviest decline was seen in homemover numbers, which fell by 61% year-on-year in April alone, compared to 53% for first-time buyers and 54% for buy-to-let purchases.
Despite seeing the worst of the initial wave of Covid-19 infections, the UK Finance data shows that London and the Southern regions of England have been somewhat less severely impacted, although clearly still very significantly down by over 40% year-on-year. The deepest impacts, however, have been seen outside England. In particular, Northern Ireland saw new mortgages for house purchase fall by nearly two-thirds compared with Q2 2019.
With England reopening its housing market in May, forward-looking data point to a strong initial recovery in early Q3, as the backlog of delayed sales complete.
Having fallen around 60% overall in April and May, the number of applications in June were up 3% compared to June 2019 for England as a whole.
The northern regions saw up to double digit year-on-year growth in applications in June. In contrast London and the South East, despite recovering strongly from the collapse in early Q2, remained in modest contraction in June.
While not all applications will eventually become completions, UK Finance says this suggests July and August are likely to see a significant recovery in mortgages advanced, largely from transactions paused during the initial months of lockdown when the housing market was closed.
Eric Leenders, managing director of personal finance at UK Finance said, “The economic and logistical impacts of lockdown in the second quarter of 2020, restricting the ability of households to buy or move house, brought about a radical reduction in activity in the mortgage market and shifted refinancing further towards internal product transfers. These impacts are now receding and we are beginning to see some recovery in the housing market.
“Many borrowers have been supported through the pandemic with temporary payment deferrals and – looking forward to the third quarter of 2020 – it is encouraging to note that a significant number of customers are now able to resume repayments.
“Although economic activity is beginning to recover, the outlook in the jobs market suggests that customers will still need support and lenders stand ready to help as required.”