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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK mortgage approvals slump as Covid-19 hits housing market - as it happened

Housing in Bristol, England.
Housing in Bristol, England. Photograph: Matt Cardy/Getty Images

Closing summary

Time for a recap:

Britain’s housing market remains gripped by the Covid-19 pandemic. New mortgage approvals fell to their lowest since at least 199, with just 9,300 new loans approved in May.

Economists warned that the UK is creating a ‘two-tier’ property sector - in which those with insecure jobs or small deposits will find it harder than ever to buy a home.

But in the US, the picture is more encouraging. Home sales surged by over 44% last month, indicating that the economy is warming up thanks to recent lockdown easing.

Boeing also cheered investors, by getting permission to fly recertification flights for its 737 Max plane. Its shares are now up over 7%, helping to lift the Dow Jones industrial average higher.

BP has also rallied, after selling its petrochemicals business to Ineos in a $5bn (£4.1bn) deal. This has pushed the FTSE 100 higher tonight.

So in the ongoing tussle between anxious bears and optimistic bulls, the bulls appear to have the upper hand -- despite the steady rise in Covid-19 cases.

Dr Marie Owens Thomsen, global chief economist at Indosuez Wealth Management, says the pandemic will continue to overshadow the markets until the US authorities get a tighter grip:

The global number of COVID-19 cases now tops 10 million, and 500’000 deaths, with a quarter of both being recorded in the US. The failure of the US to stop the numbers rising on the national level is weighing on stock markets.

Some US States are now reconsidering their re-opening plans. For a more lasting risk-on sentiment in markets, it is probably necessary that the US manages to ascertain some success in limiting the spread of the virus within its borders.

Here’s the latest prices:

  • FTSE 100: up 75 points or 1.2% at 6235
  • German DAX: up 191 points or 1.5% at 12,280
  • French CAC: up 62 points or 1.2% at 4,971
  • Dow Jones industrial average: up 446 points or 1.8% at 25,432

See you tomorrow! GW

Those better-than-expected US home sales appear to be lifting the markets.

The Dow Jones industrial average is now up 331 points, or 1.3%, at 25,347 - as economic optimism trumps Covid-19 anxiety.

Equities in London are turning higher too, with the FTSE 100 now up 85 points or 1.3% at 6,243, as we enter the final hour of trading. Energy, telecoms, financial and industrial stocks are the top performers.

UK shares are also benefiting from a weaker pound today - sterling has lost half a cent, to $1.228.

The Europe-wide Stoxx 600 is up a more modest 0.5% in late trading.

US house sales rebound strongly

While the UK housing market lags, housing sales in the US have surged unexpectedly.

Contracts to buy US homes (excluding new builds) jumped at a record pace in May. The National Association of Realtors’s Pending Home Sales Index, based on contracts signed last month, surged 44.3% to 99.6.

That’s the largest increase since the series started in 2001.

Home sales are still below their pre-crisis levels -- the index was 111.4 in February. But this does suggest the US economy is returning towards normality.

Full story: UK mortgages down 90% amid lockdown

Here’s our economics editor Larry Elliott on the slump in UK mortgage approvals since the pandemic struck:

The number of new home loans approved in Britain has fallen by 90% since the start of the Covid-19 pandemic to the lowest since at least the early 1990s, the Bank of England has said.

Threadneedle Street’s monthly update on the state of the property market found that despite the reopening of estate agents from the middle of May, the number of mortgage approvals fell to 9,300 from 15,900 in April.

The number of new home loans granted in May was well below the 25,000 anticipated by the financial markets. It was the weakest since the Bank of England series began in 1993. At the start of the year, more than 70,000 new loans were being approved each month.

Analysts said the depressed state of the mortgage market was not wholly unexpected, given the restrictions on viewing homes until May and delays in home loan approvals.

“The latest fall isn’t a sign that the market is struggling to recover,” said Hansen Lu, a property analyst at Capital Economics. “Rather, it probably reflects the gap in the sales pipeline, from when the market was closed between March and May....

More here:

A mixed open on Wall Street

The US stock markets has opened for the new week, as investors try to assess the risk that rising Covid-19 cases derail the recovery.

The Dow Jones industrial average has jumped by 111 points, or 0.45%, to 25,127. But, that’s largely due to Boeing - up over 4% after getting permission to start recertifying its 737 Max jet.

The broader S&P 500 index has dipped by 0.2%, or 6.3 points, to 3,002.73.

The tech-focused Nasdaq is also in the red, down 0.8%. Facebook has shed 3%, adding to Friday 7% drop, after Starbucks, Coca-Cola and Diageo joined Unilever in suspending some advertising on the social network.

Updated

Bank of England policymaker Gertjan Vlieghe has predicted that the neutral level of interest rates - what you’d expect when an economy is at full strength and inflation is stable - has fallen during the pandemic.

Vlieghe also told a webinar today that this rate, called r-star, could keep falling -- implying borrowing costs will remain at or near record lows for some time.

Vlieghe said (via Reuters):

“If you’re talking about the next 10 years, the evidence is stacked in the direction of we stay low and we might even go a little bit lower.”

No argument there, Jan!

Asset management firm BlackRock has given Europe a vote of confidence - hiking its rating on European shares, and downgrading their US rivals.

It argues that Europe should benefit from a ‘cyclical upside’ as its economy restarts, while American companies could suffer from an extended Covid-19 pandemic and rising trade tensions with China.

Updated

With mortgage lenders getting more cautious, and many people worried about their jobs, 2020 could be a rough year for UK house prices.

The EY ITEM Club predicts that prices may fall nationally by around 5% in the next few months, and then only pick up by 2-3% in 2021.

Updated

In the City, investors seem to be shaking off their earlier anxiety about the jump in Covid-19 cases in the US.

The FTSE 100 index has reversed its earlier losses, and is now up 39 points or 0.6% at 6198.

As so often, traders are taking their cue from Wall Street where the Dow is being called up 0.7%.

Boeing’s shares are up 7% in pre-market trading, on relief that it can start recertification flights for its 737 Max, while Facebook are down 4% after several advertisers said they were boycotting the site.

Updated

Burger chain Byron knows all about flipping beef patties. But it’s now poised to flip itself into administration.

Sky News is reporting that Byron, which employs 1,200 people, filed a notice of intention to appoint administrators on Monday.

This will give it breathing space from its creditors while it holds rescue talks with three potential buyers. One option is a ‘pre-pack’ administration, which would let a purchaser acquire Byron’s more profitable outlets.

Sky’s Mark Kleinman has the latest:

Sources said Byron’s board remained confident of sealing a deal in the coming weeks, with the likeliest outcome a pre-pack administration, which involves certain assets being sold to a new owner.

KPMG, the accountancy firm, has been running a sale process since early May.

The identity of the remaining bidders was unclear on Monday.

People close to the process said Byron intended to begin a phased reopening of its 51 UK restaurants from the middle of July.

Energy news: BP has sold its petrochemicals business to Ineos - owned by Britain’s richest man, Sir Jim Radcliffe.

The deal will raise $5bn (£4.1bn) for BP, whose finances are under pressure following the slump in the oil price since the pandemic. Brent crude is trading at $41 per barrel today, from as much as $70 in January.

Back in the aerospace industry, Boeing has been given the green light to start testing its 737 Max jet, which was grounded after two fatal crashes which killed 346 people.

Theses test flights could pave the way for commercial flights to restart -- Covid-19 permitting.....

The Covid-19 crisis is threatening to create a two-tier mortgage market in the UK, warns Hina Bhudia, partner at mortgage broker Knight Frank Finance.

On the top tier - those whose jobs haven’t been badly affected by the pandemic, and who have generous savings to fund a deposit. Below, people facing renewed uncertainty over their job prospects, with limited funds to get onto the housing ladder.

Bhudia explains:

“A two-tier mortgage market has emerged in recent weeks as lenders have become more averse to risk, and have largely withdrawn from higher loan-to-value lending ahead of the wind up of government support schemes this autumn.

“This means the market remains particularly challenging for first-time-buyers, the self employed, or anybody that relies heavily on commission or bonuses to top up their income.

“The picture is completely different for borrowers with larger deposits of 15% or more. They have much wider access to finance at historically low interest rates.

Eurozone sentiment picks up, but still weak

Over in the eurozone, consumers and businesses are a little less gloomy about economic prospects - as lockdown measures are lifted.

The European Commission’s economic sentiment indicator has risen from 67.5 in May to 75.7 in June. That’s the highest level since the pandemic hammered the European economy in March, but still much lower than in February (just before lockdowns began).

Industrial sentiment improved from -27.5 to -21.7, while optimism in the service industry rose from -43.6 to -35.6.

Josie Dent, senior economist at the CEBR thinktank, says mortgage approvals are so low partly because lenders are cautious, and partly because potential borrowers suspect prices may fall.

On 13th May, housing market activity resumed, after a seven-week hiatus amid the worst of the coronavirus crisis. The pent-up demand built up during the period when moving home was banned at the height of the lockdown was reported to have led to a resurgence in activity following the lifting of certain restrictions. Rightmove data showed that on the first day of the housing market reopening, the number of home-movers visiting properties returned to pre-lockdown daily levels, and was up 4% on the same Wednesday in 2019.

However, transaction numbers are still kept low by tighter credit conditions. Mortgage providers have become far more cautious when lending and require larger deposits, thereby limiting the number of people who can buy a home. Many people are also likely to be put off from purchasing while house prices are expected to fall, preferring to wait and see if they can get a better deal.

UK net lending

UK mortgages slump: snap reaction

Ross Counsell, chartered surveyor and director at Good Move, says the slump in mortgage lending in May show “a bleak output for the UK housing market”

“Short/medium-term, mortgage lenders are going to start requiring larger deposits and move the parameters of their stress tests/affordability calculations – this combined with current job losses and income uncertainty will undoubtedly take many buyers out of the market.

Counsell also points out that mortgage demand will suffer if the government can’t keep unemployment down:

“Long-term we expect to see a boost in the property market across the UK alongside a lift in mortgage and re-mortgage approvals. However, it’s important to note that this is thoroughly dependent on the government’s continuing plans to support people’s jobs and household income.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, explains how the coronavirus has made it much harder for banks to approve mortgages:

‘Covid-19 has had a devastating impact on the mortgage and property markets, so it is no surprise that lending was weak in May, with approvals for house purchase falling. With lockdown meaning that lenders were unable to send valuers out to physically view properties, the number of mortgages approved fell considerably. Lenders were kept busy processing mortgage payment deferrals and trying to get to grips with staff working from home rather than call centres, meaning it was far from ‘business as usual’.

‘However, lenders remain keen to lend and awash with cash to do so. With the backlog of valuations clearing now that surveyors can once again carry out valuations, we expect mortgage approvals to pick up. Mortgage rates remain extremely competitive and lenders are slowly returning to higher loan-to-values, which is good news for first-time buyers in particular.’

Households repaid more loans from banks than they took out in May, the Bank of England reports.

A £4.6 billion net repayment of consumer credit more than offset a small increase in mortgage borrowing last month.

Keith Church of credit risk advisory consultancy 4-most, points out that households are benefiting from the government’s mortgage holiday scheme, to protect those hurt by the downturn.

The UK property market has clearly not recovered from the effective ban on moving house announced three months ago.

In late March, the government instructed people to delay moving homes while the lockdown was in place. That restriction was eased on May 13, but today’s data show that it has not unleashed a surge of pent-up demand for mortgages.

UK mortgage approvals
UK mortgage approvals Photograph: Bank of England

UK mortgage approvals tumble; consumer credit shrinks

Just in: The number of new mortgages approved in the UK has slumped again, as the Covid-19 pandemic continues to grip the economy.

The Bank of England has reported that the number of mortgage approvals for house purchase fell to just 9,300 in May, down from around 15,800 in April.

This is almost 90% below the February level, and around a third of their trough during the financial crisis in 2008.

This is the lowest level since comparable records began (in 1997), the Bank adds. Economists had expected an increase, to around 25,000 new mortgage approvals.

Approvals for remortgage have also fallen, to 30,400, over 40% lower than in February.

The Bank also found that people are continuing to cut their credit card borrowings during the pandemic.

It says:

Household’s consumer credit borrowing remained lower than usual in May, as Covid-19 continued weighing on spending. On net, people repaid £4.6 billion of consumer credit in May following repayments of £7.4 billion in April and £3.8 billion in March....

The extremely weak net flows of consumer credit meant that the annual growth rate was -3.0%, the weakest since the series began in 1994.

That’s partly due to many shops still being closed last month, and partly due to people saving more money under lockdown.

Global stock markets have dropped to their lowest levels in a fortnight this morning.

The losses in Asia overnight, following a late selloff in Wall Street on Friday, has pulled the MSCI world shares index to its lowest level since June 15, Reuters reports.

As you can see, stocks are still much higher than in mid-March, when pandemic fears had caused the worst market crash in decades.

The MSCI World Index of stocks
The MSCI World Index of stocks Photograph: Refinitiv

After an hour’s trading, European stock markets are dipping into the red.

The FTSE 100 index is now down 35 points, or 0.5%, at 6123 points. France’s CAC has lost 0.44%.

June is ending with a “whimper”, says Kit Juckes of Societe Generale.

Markets are in retreat as the focus remains firmly on the virus, rather than anything that is happening to the global economy.

It’s the acceleration in infection in some US States that makes headlines and causes concern. That will keep fears of an even less V-shaped recovery...

The smaller FTSE 250 index has lost 0.8%, with cruise operator Carnival the top faller (-5.8%). UK outsourcing group Capita has lost 5.5%, while retail group Frasers (formerly Sports Direct) and bookmaker William Hill have fallen 4.5%.

Online grocer Ocado has now dropped to the bottom of the FTSE 100 leaderboard, down 2.6% at £19.80.

This follows a report that Internet shoppers could be hit by a compulsory delivery charge as part of a campaign to cut congestion and toxic emissions.

The Times reported that:

The government is considering a range of measures to reduce the damaging impact of the e-commerce boom, which has led to a rise in delivery vans on British roads.

A report from the Department for Transport’s scientific advisers recommended a “mandatory charge”, similar to that imposed for plastic bags, on all Amazon-style consumer deliveries.

European aircraft maker Airbus has warned that the Covid019 pandemic will wipe out around 40% of its planned production levels.

CEO Guillaume Faury told Die Welt newspaper that production and deliveries will be 40% lower than originally planned in 2020 and 2021.

It could take until 2025 to return production to pre-crisis levels, he added.

Faury also warned that the “brutal” drop in sales means Airbus must cut jobs, but declined to say exactly how many:

The crisis in the industry is huge - we have to react to it and adapt....

If there was a second wave of the coronavirus pandemic, with longer travel restrictions, the situation would be worse again. So I don’t want to make any promises.

Airbus employs around 130,000 people worldwide, including thousands at its factory in Broughton, north Wales, which produces wings for commercial planes such as the A320 and A350.

This chart from Saxo Bank shows how the US stock market rally has fizzled out in recent sessions:

Virus fears: What the experts say

The re-imposition of restrictions in Texas, Florida and Arizona is the main talking point in the City this morning, alongside the sobering news that the official Covid-19 death toll has hit 500,000.

As Mohit Kumar of Jefferies told clients:

Covid-19 cases crossed the 10 million mark, with the number of fatalities crossing 500K. The number of cases in the US remains a concern, particularly in the Southern states where the rise in the number of cases is forcing some states to re-instate lockdown restrictions.

Market sentiment was subdued on Friday and into today’s morning open as the market wakes to a continuing momentum in the number of virus cases.

Fears of a second-wave of infections in the US could make make markets bumpy, says Mark Haefele, chief investment officer at UBS Global Wealth Management:

“These latest virus developments, in our view, can potentially slow the recovery, but are unlikely to derail it. With virus cases still rising in a number of US states, a more volatile trial-and-error approach to reopening now appears more likely, but we expect any new restrictions to be localized.”

On Friday night, Covid-19 anxiety has knocked America’s Dow Jones industrial average to its lowest closing level in a month.

Kyle Rodda of IG says investors fear greater economic damage from the pandemic:

The market’s attention has moved squarely to the US’s second wave of COVID-19 infections. It was risk-off on Friday in global financial markets, as official data continued to show the COVID-19 caseload in several economically significant states is ramping up. The daily growth in cases across the US leapt to 1.7 per cent, with the virus curves in Texas, Florida, Arizona and California taking-on an exponential shape.

Perhaps of greatest concern to market participants, the new spike in infections has forced policymakers into action, with Texas and Florida announced a ban on drinking in bars on Friday.

US Covid-19 infections

Updated

The London stock market has made a cautious start to the new week.

The FTSE 100 index of blue-chip shares has gained 7 points, or 0.1%, to 6167.

Consumer goods firm Unilever are down 2%, after dropping its social media advertising in the US until the end of the year. Drink producer Diageo has dropped by 1.5%, after pausing its own ad spend.

The transport sector is making a better start, with IAG, parent company of British Airways, up 3.6% and jet engine maker Rolls-Royce up 2.4%.

Across Europe, the Stoxx 600 index is basically flat, while Germany’s DAX has gained 0.3%.

Introduction: Virus worries mount

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Anxiety over Covid-19 is stalking the markets again, as the pandemic continues to grip the global economy and the human toll keeps mounting.

Overnight, global deaths from the virus hit 500,000 with 10m cases now confirmed worldwide. The US outbreak shows no sign of fading, either, with Covid-19 cases there currently rising by 40,000 per day:

Texas, Florida and Arizona have all now reversed some of their plans to reopen their economies, after seeing a surge in new cases in recent days.

California governor Gavin Newsom has ordered bars in seven counties to close, while Florida governor Ron DeSantis says there’s been an “explosion” in new cases.

Last night, US health secretary Alex Azar warned that “the window is closing” on the country’s chance to take action to effectively curb the coronavirus, with 2.5 million people now known to be infected.

The deteriorating situation in the US south is alarming investors, and undermining hopes that the global economy can recover from the current slump.

As Jim Reid of Deutsche Bank told clients this morning:

While Texas, Florida and Arizona remain among the most worrying in terms of new cases, other southern US states have either slowed down reopening plans or indicated intentions to do so. The positive test rate for Texas has now soared to a record 14.3%. Arkansas, just northeast of Texas, announced they will pause their phased reopening until the current wave subsides, while other neighboring states have indicated similar intentions if case counts continue to rise.

In terms of the effective transmission rates (Rt), 33 US states now have Rt values over 1.0. In fact only 2 states, Connecticut and Massachusetts, have their entire confidence level under 1.0 at this point, compared to 7 over 1.0.

The process of ending the UK’s lockdown isn’t going too smoothly either. Leicester has seen a worrying rise in cases, prompting the government to consider imposing a local lockdown.

Asian markets have already taken a knock, with Japan’s Nikkei shedding 517 points, or 2.3%, to 21,995. Australia’s S&P/ASX 200 has dropped by 1.5%, with China’s CSI 300 losing almost 1%.

Also coming up

The Bank of England’s latest money and credit report will show whether lending to individuals and businesses rose in May. Economists expect a pick-up in mortgage lending, after sliding in April.

It could be a rough day for Facebook shareholders, as the advertising boycott against the social media firm intensifies. Facebook’s shares fell 8% on Friday after Unilever pulled advertising from the network (and also Instagram and Twitter), due to the “polarised atmosphere in the US”. They’ve now been joined by Diageo, Starbucks and Levi’s, as the backlash against Facebook’s failure to better tackle hate crime gathers pace.

And in the energy sector, US shale oil producer Chesapeake Energy has filed for bankruptcy (more on that shortly...).

The agenda

  • 9.30am BST: UK mortgage approvals for May - expected to rise to 25,000, from 15,800 in April
  • 10am BST: Euro area consumer confidence index - expected to rise to -14.7, from -18.8
  • 1pm BST: German inflation for June (flash estimate) - expected to be unchanged at 0.6%
  • 1.30pm BST: Bank of England policymaker Gertjan Vlieghe gives a speech on research into macroeconomic tail risks in asset prices

Updated

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