The £3.4 billion net lending figure announced by the UK mortgage market for the month of August is the largest since the financial crisis of 2008. Even though many experts are predicting a more lacklustre performance by the UK property market during the latter part of 2015 moving on into 2016, it seems that investors and homeowners have different ideas.
The net lending increase of £3.4 billion was accompanied by an increase in mortgage approvals for new homes which hit an 18 month high of 71,000. Remortgage approvals also increased from 39,000 to just under 41,000 as homeowners look to take advantage of historically low UK base rates.
Should we panic about overheating?
Despite the fact we saw a significant increase in net mortgage lending and a recent high in mortgage approval numbers let’s not forget these are still well below the pre-financial crisis levels. On one hand we have some experts suggesting we are heading towards yet another credit crisis, with consumers taking on more debt, while alternatively surely remortgaging your assets at historically low interest rates is a sensible move for many people?
As we have mentioned on numerous occasions, the UK real estate market overall is performing admirably under the current economic conditions although this performance is polarised across the country. We have the likes of London, the south-east and the east showing significant property value growth while the North of England and the Midlands show minimal improvement. So, while we may be hitting recent highs in relation to activity in some areas of the UK property market this is not quite the reality across the board.
Medium term outlook
If you take a step back and look at the situation from a distance, we have UK base rates at historic lows, inflation at extremely low levels and signs of renewed wage growth. So, in reality the likelihood is that the real debt situation for many people will improve in the short to medium term and therefore help support the current splurge on mortgage funding.
Of course we need to take into account not only the UK economic situation but also that in Europe and across the world in general. This concern for economic activity outside of the UK should to a certain extent limit the chances of the UK market “moving into overvalued territory” at least for the foreseeable future. It does however show the value of the previous UK government’s decision to remain outside of the Eurozone and maintain sterling as opposed to the euro.
While the improvement in mortgage approvals would in normal circumstances prompt the ringing of some alarm bells, this is not really the situation at the moment. UK mortgage approval rates are still down from the pre-financial crisis peak of around 130,000 so there is certainly room for growth without overdue concern. The main problem for the UK market at the moment is the lack of suitable property which ensures that any suitable property which does emerge seems to attract significant levels of competition.
We are in a unique economic situation across the UK with the property market seemingly unstoppable, mortgage approvals rising significantly yet economic turmoil continues in Europe and more recently in China. How long can the UK property market continue to outperform its peers?