The key chart
The key message
“Pschitt” – the sound of deflating UK and EA mortgage markets is getting louder.
Monthly mortgage flows have fallen well-below pre-pandemics levels in both regions (only 0.5x in the UK and 0.3x in the EA). Monthly flows have also recorded three and four consecutive months of below pre-pandemic average levels in the UK and EA respectively (on a 3m MVA basis). The rate of slowdown is particularly sharp in the EA. EA monthly flows have fallen from €25.9bn in June 2022 (2.1x pre-pandemic flows) to only €4.2bn in February 2023 (0.3x pre-pandemic flows).
These trends matter because mortgage demand typically displays a co-incident relationship with real GDP. In this context, February’s mortgage data re-enforces the messages from the UK and EA money sectors – central banks continue to tighten policy as the risks to the economic outlook intensify.
“Pschitt…”
Monthly mortgage flows in the UK and EA have fallen well below pre-pandemic level as air continues to escape from the regions’ RRE markets (see key chart above).
The 3m MVA of UK mortgage flows (£1.8bn) fell to 0.5x the pre-pandemic average flow of £3.9bn in February 2023. This marks three consecutive months of below pre-pandemic flows. The 3m MVA of EA mortgage flows (€4.2bn) fell to only 0.3x the pre-pandemic average flow of €12.5bn. The EA has seen four consecutive months of below pre-pandemic flows.
The rate of slowdown in mortgage lending flows is particularly sharp in the EA. Monthly flows have fallen from €25.9bn in June 2022 (2.1x pre-pandemic flows) to €4.2bn in February 2023 (0.3x pre-pandemic flows). This compares with respective multiples of 1.3x (June 2022) and 0.5x (February 2023) for UK mortgage flows.
Monthly mortgage flows – UK details
(Source: BoE; CMMP)
Monthly UK mortgage flows fell to £0.7bn in February 2023, down from £2.0bn in January 2023 (see chart above). In relation to the pre-pandemic period, this is the lowest level of net borrowing since April 2016. February’s flow was only 0.2x the pre-pandemic flow of £3.9bn and well below the recent March 2022 peak of £7.5bn (1.9x pre-pandemic flows.)
The silver lining to these dark clouds was the fact that net approvals for house purchases increased to 43,500 in February from 39,600 in January. This was the first monthly increase in approvals since August 2022 and is important because approvals are an indicator of future borrowing.
Monthly mortgage flows – EA details
Monthly EA mortgage flows rebounded to €5.1bn in February 2023, up from €2.8bn in January 2023 (see chart above). February’s flow was still only 0.4x the pre-pandemic average flow of €12.6bn and marks five consecutive months of below pre-pandemic average flows since October 2022.
Why the slowdown in mortgage flows matters
Mortgage demand typically displays a co-incident relationship with real GDP. In this context, February’s data re-enforces the messages from the UK and EA money sectors – central banks continue to tighten policy as the risks to the economic outlook intensify.
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.