The key chart
Monthly UK and EA mortgage flows (3m MVA) expressed as a multiple of pre-pandemic average flows (Source: BoE; CMMP)
The key message
The sound of deflating UK and EA mortgage markets increased further at the start of 2Q23, including the return of net mortgage repayments in the UK. More bad news and negative headlines followed in UK newspapers at the start of this week…
“Banks turn the screw with a weekend of worse mortgage rates”
The Times, 5 June 2023
UK monthly mortgage flow dynamics (LHS) and annual growth rate (RHS) (Source: BoE; CMMP)
According to the latest BoE statistics, borrowing of mortgage debt by UK individuals declined from net zero in March 2023 to net repayments of £1.4bn in April 2023. This represents the lowest level since the £1.8bn net repayments recorded in July 2021.
The BoE noted that, “If the period since the onset of the COVID-19 pandemic is excluded, net borrowing of mortgage debt was at its lowest level on record” (i.e. since April 1993). The 3m MVA of monthly flows fell to -£203m in April from £903m in March. The 3m MVA of monthly flows has been below pre-pandemic levels since November 2022.
The annual growth rate fell to 2.3% YoY, the slowest rate since September 2015. With approvals also falling from 51,500 in March to 48,700 in April, further weakness in monthly flows and annual growth rates are likely.
EA monthly mortgage flow dynamics (LHS) and annual growth rate (RHS) (Source: ECB; CMMP)
Monthly EA mortgage flows also slowed sharply in April 2023 according to the latest ECB statistics. The flow fell to €1.7bn in April from €7.5bn in March and €5.1bn in February. The 3m MVA average of mortgage flows fell to €4.7bn in April from €4.9bn in March, only 0.38x the pre-pandemic average flow. The annual growth rate fell to 3.0% YoY, the slowest rate since April 2018.
Weaknesses in mortgage flows matter for two important reasons:
First, mortgage demand typically displays a co-incident relationship with real GDP.
Second, and in this context, the message from the UK and EA money sectors is clear – 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.