Rising U.K. House Prices Drive Mortgage Surge for Banks
December 16 2020 - 06:55AM
Dow Jones News
By Simon Clark
A surge in mortgage loans is proving to be a bright spot for
British lenders, as the housing market shrugs off the impact of the
coronavirus pandemic and concerns about the country's exit from the
European Union.
Shares in British lenders have underperformed the FTSE 100 index
this year, while the economic impact of the pandemic forced many
banks to increase provisions for nonperforming loans and low
interest rates made it tougher for them to make a profit.
But demand for new mortgages has been a rare beacon during the
pandemic. There were 97,500 mortgage approvals for house purchases
in October, the highest since September 2007, according to the Bank
of England.
"Mortgages look like a pretty decent bright spot," Barclays PLC
Chief Financial Officer Tushar Morzaria said on a call with
analysts discussing the bank's third quarter earnings. "Application
levels are running at pretty robust levels."
The surge in mortgage applications is being felt throughout the
banking industry. Lloyds Banking Group PLC, the U.K.'s largest
mortgage lender, has recorded its highest share of new mortgage
approvals since 2008, with its open mortgage book growing by GBP3.5
billion, the equivalent of $4.7 billion, to GBP270.6 billion.
The upsurge has also seen banks reintroducing mortgages worth
90% of the purchase price: NatWest Group PLC followed Lloyds by
reintroducing them on Wednesday, while Barclays has introduced two
90% loan-to-value mortgages for all first-time buyers. The
Nationwide Building Society, meanwhile, has resumed offering 90%
loan-to-value mortgages to all home movers.
Banks drew back from making high loan-to-value mortgages as the
pandemic struck in March, fueling concerns about the economy and
the property market. More prudent lending helps ward off future
problems for banks if property values fall.
"Everyone pretty much reduced their maximum LTV at the height of
the pandemic," Nationwide spokesman Mike Pitcher said.
Rising U.K. house prices during the pandemic reflect a global
trend, according to UBS Group AG, which said in September that
house prices are accelerating despite the sharpest global economic
downturn in more than 60 years. Americans are on track to take more
mortgages this year than they did during the run-up to the 2008-09
financial crisis.
The average U.K. house price rose 7% in the 12 months to
November to GBP253,243 as the British government imposed a second
national lockdown to stem the spread of the virus. The average
house price has risen by more than GBP15,000 since June, the
strongest five-month gain since 2004, according to Halifax, a unit
of Lloyds.
Soaring U.K. house prices were partly fueled by the government's
decision to scrap a home buyers' tax on properties valued up to
GBP500,000 until March 2021. But that doesn't explain the whole
rise: Billions of pounds of emergency government support for
companies and workers have propped up the U.K. economy, while low
interest rates and city dwellers moving to rural areas as working
from home becomes a permanent prospect have also propelled house
sales.
"The fundamental driver is the cost of debt," Rupert des Forges,
a partner at London-based real-estate broker Knight Frank, said in
an interview. "Interest rates where you can get retail debt fixed
for five years at 1.2% or 1.3% is so compelling."
The reintroduction of high loan-to-value mortgages may make it
easier for first-time buyers to borrow, as U.K. housing is
increasingly unaffordable for workers on the average wage. The
average U.K. house price is more than 10 times the GBP22,389
average income of a nurse, according to real-estate broker Keller
Williams.
"We are committed to helping people take their first step on to
the property ladder," said Jasjyot Singh, Lloyds managing director
of consumer and business banking. "Reintroducing options at higher
LTVs means we can support more people ready to get a foot on the
ladder."
The U.K. housing market will face more challenges next year,
when the temporary tax cut for home buyers and government support
measures are likely to end and employment is expected to rise,
according to Capital Economics, a London-based research firm.
Write to Simon Clark at simon.clark@wsj.com
(END) Dow Jones Newswires
December 16, 2020 06:40 ET (11:40 GMT)
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