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Record slump in mortgage lending as pandemic hits house prices

Russell Lynch
House with virus cells

A property market shuttered by Covid-19 endured the biggest collapse in mortgage approvals in April, Bank of England figures revealed on Tuesday.

Its latest statistics showed just 15,800 loans for house purchases were given the go-ahead over the month - 80pc down on pre-pandemic February and just half the level seen at the nadir of the financial crisis.

The dire figures - the worst since the Bank’s records began in 1993 - came as house prices data from Nationwide showed a 1.7pc slide in prices during May. That marked the biggest fall over a single month since 2009.

Agents are pinning hopes on a rapid bounce-back after the property market made a cautious reopening last month using socially distanced property viewings, and the industry catches up with an estimated backlog of sales approaching 400,000. 

Simon Gammon, managing partner at Knight Frank’s finance arm, said: “Mortgage lending fell off a cliff at the onset of the pandemic as surveyors were unable to conduct physical inspections. Thankfully, surveyors are now able to return to work safely and are working their way through a backlog of applications built up over the course of the lockdown.”

However, the prospects for property prices look much less certain as the Bank of England’s gloomy scenario for the post-Covid economy pencils in a 16pc slump, as well as unemployment soaring towards 9pc as firms lay off millions of workers.

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Samuel Tombs at Pantheon Macroeconomics said: “With mortgage rates having fallen only marginally so far this year, unemployment set to rise and banks intending to restrict the supply of secured credit, we expect mortgage lending to remain at least 10pc below its pre-virus peak in the second half of this year.”

Nationwide's figures are the first to show the impact of lockdown and the housing market freeze on values. As well as the biggest monthly slump since February 2009,  annual growth in house prices slowed to 1.8pc from May 2019 – half the pace of April.

On March 27, the Government shut down the property market, suspending 373,000 house sales, according to property portal Zoopla. The number of completed sales more than halved between March and April, according to HMRC. 

This reduced number included sales that were determined before lockdown. The number of newly agreed sales plummeted by more than 90pc in April. There were so few completed sales in May that the Office for National Statistics has suspended its price index.

Robert Gardner, of Nationwide, said mortgage activity had also declined sharply. The sample size was large and representative enough to publish price results, he said, although “low transaction levels may still make gauging price trends difficult in the coming months”. 

The Nationwide numbers are based on post-survey mortgage approvals and give a more immediate indicator of the market than transaction figures, but there is still some time lag.

While the housing markets in Scotland, Wales and Northern Ireland remain shut, the English sector reopened on May 13. Agents have reported a surge in inquiries and viewings, particularly for regional property as buyers seek larger homes with more green space after lockdown.

Socially distanced property viewing rules

Even though life is returning to the market, the shock of lockdown will continue to affect the price data.

Buyers are unnerved by the bleak house price forecasts, including the Bank of England’s dire predictions, while deals that were agreed on pre-lockdown prices are now facing heavy negotiation.

Lucy Pendleton, of James Pendleton estate agents, said “a wave of gazundering has hit the market in the past fortnight” with nearly four in five buyers who had agreed sales before lockdown trying to reduce prices.

The current Nationwide figures do not reflect the looming shock waiting for house prices in the autumn when coronavirus financial support schemes end.

For now, pent-up demand from lockdown is combined with the fact that a vast number of sellers are protected from being forced to accept price cuts. 

The Government is supporting the wages of 8.7m people on the furlough scheme, and one in seven households are on mortgage payment holidays, but both forms of support are due to end in October.

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