The key chart
(Source: BoE; ECB; CMMP)
The key message
Current trends in the euro area (EA) and UK mortgage markets provide little cheer for investors hoping for a growth recovery in the regions.
The synchronised slowdown highlighted last month accelerated further in December 2022. Monthly mortgage flows have fallen below their respective pre-pandemic averages in both cases. The rate of slowdown is particularly sharp in the EA.
Given that mortgage demand typically displays a co-incident relationship with real GDP, the message from the UK and EA money sectors is one of rising risks to the economic outlook – the challenging context for central bank decisions this week.
Monthly mortgage flows – the key trends
Monthly mortgage flows have fallen below their pre-pandemic levels in both regions (see key chart above). The 3m MVA of monthly mortgage flows in the EA (€7.2bn) has fallen to only 0.58x the pre-pandemic flow (€12.5bn). In the UK, the 3m MVA of mortgage flows (£3.7bn) fell to 0.95x the pre-pandemic flow (£3.9bn). This was the first time that the UK’s monthly mortgage flow has fallen below its pre-pandemic average since December 2021.
The rate of slowdown in mortgage lending flows is particularly sharp in the EA. Flows have fallen from €26bn in June 2022 (2.02x pre-pandemic average) to €7bn in December 2022 (0.58x pre-pandemic average). This compares with respective multiples of 1.32x (June) and 0.95x (December) for UK mortgage flows.
Monthly mortgage flows – the UK details
(Source: BoE; CMMP)
Monthly UK mortgage flows fell to 3.2bn in December 2022 down from £4.3bn in November 2022 (see chart above). December’s flow was only 0.83x the pre-pandemic average flow of £3.9bn and below the recent March 2022 peak of £7.5bn (1.9x pre-pandemic flows).
Approvals for house purchase, and indicator of future borrowing, decreased to 35,600 in December 2022 from 46,200 in November. The latest approvals were the lowest since May 2022 and represent the fourth consecutive month of declines. It is reasonable, therefore, to expect lower UK flows in coming months.
Monthly mortgage flows – the EA details
(Source: ECB; CMMP)
Monthly EA mortgage flows fell to €4.5bn in December 2022 from €8.9bn in November and €30.1bn in June 2022 (see chart above). December’s flow was only 0.4x the pre-pandemic average of €12.6bn and was the lowest monthly flow since March 2020 (€3.8bn) at the start of the pandemic.
Monthly mortgage flows – why the slowdown matters
Given that mortgage demand typically displays a co-incident relationship with real GDP, the message from the UK and EA money sectors is one of rising risks to the economic outlook – the challenging context for central bank decisions this week.
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.