A combination of pent-up demand and the stamp duty holiday pushed home loan approvals up in August.

Mortgage approvals soared to a near 13-year high in August as the scramble to buy homes continued.

The number of mortgages given the green light hit their highest level since October 2007 as a result of pent-up demand following lockdown and the government’s stamp duty holiday.

A total of 84,700 mortgages were approved in August, a 28% increase on the previous month’s total, according to the Bank of England.

David Ross, managing director, Hometrack, said: “Today’s report confirms the bounce back in mortgage approvals for house purchases that Hometrack identified during August. We have seen continued growth in applications during September showing that demand remains high at approximately 30% up on a year ago.  

“At the same time, we are seeing signs of softening of demand from first-time buyers with 20% fewer applications for mortgages requiring less than a 15% deposit in September when compared to August.

"This is potentially affected by reducing availability of low deposit mortgages but has been offset by strong demand amongst home movers and higher equity applicants."

Why is this happening?

A number of factors have combined to produce August’s strong figure for mortgage approvals for house purchase.

On the one hand, demand that built up during the weeks that the housing market was closed is continuing to work through the system.

At the same time, lockdown itself has prompted people who were previously happy to stay put to consider moving, after finding their current home did not meet their needs during lockdown.

The government’s stamp duty holiday, under which stamp duty is waived on homes costing up to £500,000 until 21 March 2021, has provided a further boost to the market.

The holiday was announced on 8 July, so August is the first full month for which it is reflected in the figures.

Finally, August is traditionally a quiet month for the property market as people put moving plans on hold while they go on holiday, but with travel restrictions this summer meant many people did not go away, and instead got on with a house purchase.

Who does it affect?

The fact that the housing market is so buoyant is good news all round.

Prior to the coronavirus pandemic, property transaction levels had been held back by a shortage of homes for sale.

The situation created a vicious circle for the housing market, with existing homeowners delaying listing their property because of a lack of choice for their next home.

The current high level of activity in the market indicates this issue has now been overcome.

It is also significant that mortgage approvals for house purchase have reached their highest level since the global financial crisis, as this suggests despite concerns about economic uncertainty and rising unemployment, banks and building societies are still happy to lend on homes.

What’s the background?

The number of mortgages approved for house purchase so far this year is still below the figure for the same period of 2019, suggesting the current boom in demand could have further to run.

A total of 418,000 loans have been approved for people buying a property so far this year, compared with 524,000 in the first eight months of 2019.

But approvals for people remortgaging are less buoyant, with only 33,400 new loans agreed for people switching deals in August, broadly unchanged since July and 36% lower than in February.

Ross added: “With continued uncertainty due to upcoming changes to income support and the effect of ending the stamp duty holiday, volatility will continue in the market.

"Demand is likely to soften, potentially with a demand spike ahead of the end, meaning lenders will need a continued focus on risk.”

Top takeaways

  • Mortgage approvals soared to a near 13-year high in August
  • A total of 84,700 mortgages were approved during the month - the highest level since October 2007

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