Trends in the stock (EUR bn) and growth rate (% YoY) of EA mortgages (Source: ECB; CMMP)
The key message
The euro area (EA) money sector is sending a clear message at the start of 2023 – the ECB is succeeding in deflating the region’s mortgage market. Good news for financial stability, less positive for investors positioned for a recovery in EA growth.
Deflating the EA mortgage market
Trends in EA mortgage lending annual growth rate (% YoY) (Source: ECB; CMMP)
Annual growth in the outstanding stock of mortgages slowed to 3.9% in January 2023, down from 4.4% in December 2022 and the recent peak of 5.8% in August 2021 (see chart above). Monthly mortgage flows also slowed sharply to €2.8bn in January 2023, down from €25.7bn a year ago and their recent peak of €30.1bn in June 2022 (see chart below).
Mortgage dynamics in Germany and France are key drivers here. These markets account for 30% and 25% of the outstanding stock of mortgages and contribute 40% and 25% to total mortgage growth respectively (see chart below).
EA mortgage lending (% YoY) broken down by country (ppt) (Source: ECB; CMMP)
At the point of peak EA mortgage growth in August 2021, Germany mortgages grew 7.2% YoY and contributed 2.1ppt (36%) to total growth. At the same time, French mortgages grew 8.2% YoY and contributed 2.0ppt (34%) to total growth.
Trends in annual growth (% YoY) in EA, German and French mortgage lending (Source: ECB; CMMP)
Fast forward to January 2023, and German mortgage growth slowed to 5.2% YoY and contributed 1.5ppt (38%) to total growth. More importantly, French mortgage growth had slowed to 3.9% YoY and contributed only 1.0ppt (26%) to total growth. Note also that (more volatile) monthly flow data indicated net repayments in both Germany and France in January 2023.
Trends in annual growth in EA lending (LHS) and contribution from Germany and France (RHS) (Source: ECB; CMMP)
The trends summarised above are positive from a financial stability perspective. CMMP analysis highlighted RRE vulnerabilities in Germany based on the combination of house price and lending dynamics, the extent of overvaluation and the lack of appropriate macroprudential measures back in November 2021. It also warned of the risks associated with the rate of growth and affordability of French household sector debt in January 2022.
They are less positive for investors positioned for a recovery in EA growth, since mortgage demand typically displays a coincident relationship with GDP growth. Previous posts have noted a synchronised slowdown in mortgage demand in the EA and the UK, albeit with a more rapid deceleration in the former region. The Bank of England will publish UK mortgage data on 1 March 2023. More to follow then…
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.
Synchronised slowdowns in monthly UK and EA mortgage flows are accelerating
The key chart
Monthly mortgage flows (3m MVA) as a multiple of pre-pandemic average flows (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
Monthly mortgage flows (£bn) and annual growth rate in outstanding stock (RHS) (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
Monthly EA mortgage flows (EUR bn) and annual growth rate in outstanding stock (RHS) (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.
Mortgage flows slowing at a faster rate in the EA than in the UK
The key chart
Monthly mortgage flows (3m MVA) expressed as a multiple of pre-pandemic average flows (Source: BoE, ECB; CMMP)
The key message
November 2022 monthly mortgage flows point to a synchronised slowdown in mortgage demand in the UK and EA, but with a sharper rate of decline in the EA (driven by German and French dynamics). Mortgage demand typically displays a co-incident relationship with GDP growth. In this context, turning points are more significant than the rate of change. The key message here relates more to a synchronised slowdown in economic activity in both regions, therefore, rather than “point-scoring” between them!
Synchronised slowdowns?
Trends in UK monthly mortgage flow (£bn, LHS) and annual growth (% YoY, RHS) (Source: BoE; CMMP)
Monthly UK mortgage flows rose to £4.4bn in November 2022, up from £3.6bn in October 2022. While this is well below the recent peak flow of £17bn in June 2021, it is above the pre-pandemic average flow of £3.9bn.
According to the latest, Bank of England data release (4 January 2022), approvals for house purchase, an indicator of future borrowing, decreased from 57,900 in October 2022 to 46,100 in November 2022, the lowest level since June 2020. It is reasonable, therefore, to expect lower UK flows in coming months.
Mortgage flows are slowing at a faster rate in the EA than in the UK. The 3m MVA of monthly mortgage flows in the EA has fallen from 2.1x pre-pandemic flows in July 2022 to 0.9x pre-pandemic flows in November 2022 (see key chart above). In contrast, UK monthly flows remain above pre-pandemic levels on a monthly basis (1.1x) and a smoothed basis (1.2x).
Mortgage demand typically displays a co-incident relationship with GDP growth. In this context, turning points are more significant than the rate of change. So, as above, the key message here relates more to a synchronised slowdown in economic activity in both regions rather than “point-scoring” between them!
Please note that the summary comments above are abstracts from more detailed analysis that is available separately.
Spanish MFIs’ record of negative contribution to EA mortgages
The key chart
EA mortgage growth (% YoY) and contribution from Spanish MFIs (ppt) (Source: ECB; CMMP)
The key message
Spanish MFIs have a more consistent record than Rafael Nada at Roland-Garros.
While Rafa has won eight of the last ten French Open men’s singles championships (2011-2020) and a record 13 titles in total, Spanish MFIs have delivered an unbroken decade of negative contributions to euro area mortgage growth.
120 consecutive months of negative contribution since April 2011.
While the YoY growth rate and contribution were both marginally negative in April 2021, the last three months have seen positive monthly flows. Are Spanish MFIs about to rejoin the EA mortgage party in 2021?
The latest bank lending survey suggests a neutral/slightly negative supply-side outlook but, in combination, four factors suggest a more positive demand-side outlook:
The HH debt ratio has fallen back in line with the EA average (63% GDP) following a decade of deleveraging
The cost of borrowing is at a record low (1.49% in April 2021)
From (1) and (2), the HH debt service ratio has fallen to 6.5%, below its LT average of 7.9% and close to a 20 year low
House prices remain 28% below their peak in real terms and estimated valuations are less extreme than elsewhere in the EA
None of these four factors are new in themselves and future developments remain “highly dependent on the recovery path and the ability of Spanish and EA policymakers to prevent cliff edges by not abruptly ending support measures” (ECB, 2021). Nonetheless, Spain remains the EA’s third largest mortgage market and mortgage debt represents c80% of total HH debt. A continued rebound in monthly mortgage flows and sustained positive contributions to EA mortgage growth would represent an important signal for investors positioned for a recovery in Europe.
More consistent than Rafa!
Spanish MFIs have a more consistent record than Rafael Nada at Roland-Garros. While Rafa has won eight of the last ten French Open men’s singles championships (2011-2020) and a record 13 titles in total, Spanish MFIs have delivered an unbroken decade of negative contributions to euro area mortgage growth – 120 consecutive months of negative contribution since April 2011 (see key chart above).
Outstanding stock of mortgages provided by Spanish MFIs and market share of EA (Source: ECB; CMMP)
The outstanding stock of mortgages has fallen 23% from €663bn in April 2011 to €508bn in April 2018 (slightly above January 2021’s recent low of €506bn). Over the same period, the outstanding stock of EA mortgages has risen 27% from €3,767bn to €4,798bn. The market share of Spanish MFIs has fallen from 18% to 11% due to these divergent growth trends (see chart above).
Stable “collective” market shares masks significant differences between the big 4 (Source: ECB; CMMP)
As an aside, the market share of German, French, Spanish and Dutch MFIs has remained remarkably stable over this period at 75%. This aggregate share trends masks very different trends at the country level, however. The market shares of German and French MFIs have risen from 26% to 30% and from 21% to 25% respectively, while the market share of Dutch MFIs has remained constant at 11%.
YoY growth in Spanish MFI mortgages (Source: ECB; CMMP)Monthly mortgage flows – three consecutive positive months (Source: ECB; CMMP)
While the YoY growth rate and contribution were both marginally negative in April 2021, the last three months have seen positive monthly flows (see charts above). Does this meant that Spanish MFIs are about to rejoin the EA mortgage party? The latest bank lending survey suggests a neutral supply-side outlook, but four factors suggest a more positive demand-side outlook: HH debt ratios; the cost of borrowing; HH debt service ratios; and house prices and valuation.
HH debt ratios
HH debt ratios (% GDP) for EA and Spain since December 2000 (Source: BIS; CMMP)
The HH debt ratio has fallen from 86% GDP (2Q10) to 63% GDP, in line with the EA average. To mix sporting metaphors horribly, the past two decades has been a “game of two halves”.
Twenty years ago, the HH debt ratios for the EA and Spain were similar at 49% GDP and 46% GDP respectively. At their respective peaks in 2Q10, these ratios had risen to 64% GDP and 86% GDP. (Note that the BIS considers 85% GDP to be the threshold level above which HH debt becomes a constraint on future growth.). By 4Q19, the EA and Spanish debt ratios had fallen back to 58% GDP and 57% GDP respectively and ended 2020 at the same level of 63% GDP. (Note also that the increase in the debt ratio in 2020 was driven by GDP falling more than the fall in debt levels.)
Sustained HH deleveraging was a key explanatory factor behind negative growth and contributions from Spanish MFIs in the past.
Cost of borrowing
Cost of borrowing at a record low (Source: ECB; CMMP)
The cost of borrowing has fallen to a new low of 1.49% (April 2021). The cost of borrowing has fallen 23bp YoY and recent press articles suggest increased price competition in May and June particularly from those MFIs that lost market share during the lockdown.
Fixed versus floating (Source: ECB; CMMP)
Price competition is particularly strong in the fixed mortgage market. Spain has historically had a bias towards more floating rate lending than other EA economies (see chart above). However, in April 2021, the share of mortgages with a floating rate or an initial fixation of up to one year fell to 28%, slightly above the record low of 27% in March. For reference, the share of floating rate mortgage loans in the EA also hit a new low in April at 15% to total mortgage loans.
HH debt service ratios (affordability)
Affordability risk close to twenty year low (Source: BIS; CMMP)
The HH debt service ratio (DSR) in Spain is currently 6.5% (as at end 4Q20). This compares with a peak level of 11.7% in 3Q08 and a LT average of 7.9%. With lower debt ratios and record low costs of borrowing, it is unsurprising that affordability is not a significant demand constraint for Spanish HHs, currently.
House prices and (over)valuation
Real YoY growth in house prices over past 20 years (Source: BIS; CMMP)Real house price index trends 2010 = 100 (Source: BIS; CMMP)
House prices are 28% below their peak in real terms and valuations less extreme than elsewhere in the EA.
Spanish house prices peaked in 3Q07. They did not recover in real terms until 2Q14, almost seven years later. Despite the recovery since then, prices remain 28% below their peak level in real terms.
Overvaluation estimates as at end 2020 (Source: ECB; CMMP)
In “Herd immunity”, I noted the resilience and risks in global housing since the COVID-19 pandemic hit, especially in advanced economies, and the fact that some of the largest increases in EA house prices during 2020 had occurred in economies where house prices were also among the most overvalued (Luxembourg, Denmark, Austria). According to ECB estimates, house prices in Spain are overvalued by around 5%, a more modest level than elsewhere in the region.
Conclusion
None of the four factors highlighted above are new in themselves and future developments remain “highly dependent on the recovery path and the ability of Spanish and EA policymakers to prevent cliff edges by not abruptly ending support measures” (ECB, 2021). Nonetheless, Spain remains the EA’s third largest mortgage market and mortgage debt represents c80% of total HH debt. A recovery in mortgage demand and sustained positive contributions to EA mortgage growth would represent an important signal of a recovery in the EA.
“Vamos, Rafa” – good luck in Friday’s semi-final against Novak!
Please note that the summary comments and charts above are summaries from more detailed analysis that is available separately
Trends in global house prices since the GFC (Source: BIS; CMMP)
The key message
Anyone looking for evidence of COVID-19 “herd immunity” need look no further than global housing markets!
House prices rose 4% globally in 2020 in real terms, the fastest rate of growth since the GFC. Prices rose 7% in advanced economies, compared with a more modest 2% in emerging economies. House price resilience during the pandemic reflects many factors: a recovery in HH incomes thanks to continued policy support; lower borrowing costs; reduced supply as construction activity slowed; temporary tax breaks; and perceptions that housing was/is a relatively safe investment.
The combination of rising prices and an uncertain macro backdrop has kept measures of overvaluation elevated. In the euro area, for example, above average increases in house prices occurred in Luxembourg, Slovakia, Estonia, Portugal, Denmark, Austria, the Netherlands and France. With the exception of Estonia, estimates suggested overvaluation in each of these countries before the start of 2020, notably in Luxembourg, Denmark and Austria. Similarly, the Bank of England indicated unease about the UK housing market recently (1 June 2021) after the Nationwide Building Society said that prices were growing at their fastest pace since 2014.
Current EA housing and lending dynamics reflect Minsky’s hypothesis that, over the course of a long financial cycle, there will be a shift towards riskier and more speculative sectors. The flow of funds towards property and financial asset markets (FIRE-based lending) is increasing at the expense of more productive flows to the real economy (COCO-based lending). FIRE-based lending in the EA hit a new high of €5,905bn in April 2021 and accounts for 52% of total lending with negative implications for leverage, growth, stability and income inequality.
Resilience and risks in global housing
Anyone looking for evidence of COVID-19 “herd immunity” need look no further than global housing markets! House prices rose 4% globally in 2020 (in real terms) according to latest BIS data release, the fastest rate of growth since the GFC. Prices are now 21% higher than their average after the GFC (see chart below).
Real price change in 2020 plotted against real price change since the GFC (Source: BIS; CMMP)
Prices rose 7% in “advanced economies” (especially New Zealand, Canada, Denmark, Portugal, Austria, Germany, US) compared with a more modest 2% in “emerging economies.” The resilience of housing markets reflects many factors: a recovery in HH incomes thanks to continued policy support; lower borrowing costs; reduce supply as construction activity slowed; temporary tax breaks; and the perceptions that housing was/is a relatively safe investment.
EA trends – 2020 price change ploted against valuation at end-2019 (Source: ECB; CMMP)
The key risk here is that the combination of rising prices and an uncertain macro backdrop have kept measures of overvaluation elevated.
In their latest Financial Stability Review, for example, the ECB notes that “house price growth during the pandemic has generally been higher for those countries that were already experiencing pronounced overvaluation prior to the pandemic (see chart above).”
The largest/above average increases in house prices during 2020 in the EA occurred in Luxembourg (17%), Slovakia (16%), Estonia (9%), Portugal (9%), Denmark (9%), Austria (7%), the Netherlands (7%) and France (6%). With the exception of Estonia, ECB estimates suggest that house prices were overvalued in each of these countries before the start of 2020, notably in Luxembourg (39% overvalued, not shown in graph above), Denmark (16% overvalued) and Austria (15% overvalued).
On the 7 June 2021, the BIS will release 4Q20 credit and affordability data which will provide further insights into the risks associated with housing trends in the EA and the rest-of-the-world.
The rise in FIRE-based lending in the euro area (Source: ECB; CMMP)
In recent posts, I have noted an adaptation of Hyman Minsky’s hypothesis that states that over the course of a long financial cycle, there will be a shift towards riskier and more speculative sectors.
Minsky’s theory can be applied to the house price trends described above and to HH lending trends described in previous posts. Minsky’s “shift” is reflected in the decline in bank credit to the real sector (COCO-based credit) and an increase in funds flowing towards property and financial asset markets (FIRE-based credit).
FIRE-based lending in the EA hit a new high of €5,905bn in April 2021 and accounts for 52% of total lending with negative implications for leverage, growth, stability and income inequality.
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.
Challenges and opportunities for UK mortgage providers
The key chart
Trends in YoY growth rates in UK mortgages, consumer credit and corporate credit (Source: BoE; CMMP)
The key message
The relative stability in UK mortgage demand has been a consistent theme in the “message from the UK money sector” over the past five years. During the COVID-19 pandemic, this stability was the only bright spot in an otherwise gloomy UK retail finance market:
Monthly net borrowing hit £11.8b in March 2021, the strongest net borrowing since records began in 1993, driven by the expected ending of temporary stamp duty tax relief
Looking forward, approvals are below their November 2020 peak but remain relatively strong
Margin pressures are easing as the effective rate on new mortgages continues to rise, but remain a challenge for mortgage providers.
Against this cyclical backdrop, digital transformation remains the primary challenge and opportunity for the sector as providers seek to meet their customers’ needs more effectively while delivering operational efficiencies.
Experience across Europe shows how digitalisation can deliver tangible benefits including reduced costs, automated scoring/applications, enhanced market segmentation, and improved treasury and liquidity management.
Challenges and opportunities
The relative stability in UK mortgage demand has been a consistent theme in the “message from the UK money sector”. Over the past five years, the annual (nominal) growth in mortgages has averaged 3.3%. The lowest rate of growth (2.7%) was recorded in August 2020 and October 2020 and the maximum rate of growth (3.8%) in March 2021. The relative stability in mortgage demand contrasts sharply with the more volatile corporate (NFC) and consumer credit demand, especially during the COVID-19 pandemic (see key chart above).
Twenty-year trends in UK mortgage demand (Source: BoE; CMMP)
That said, current mortgage demand remains subdued in relation to historic trends. For reference, the average nominal and real rates of growth in the five years between March 2003 and March 2008 were 12.2% and 10.1% respectively, compared with 3.3% and 1.5% averages in the past five years (see chart above).
Monthly flows (£bn) in UK lending to individuals since January 2020 (Source: BoE; CMMP)
During the COVID-19 pandemic, this stability was the only bright spot in an otherwise gloomy UK retail finance market. The chart above illustrates monthly mortgage flows in blue, other consumer credit in maroon and credit cards in green. The weakest net borrowing occurred at the height of the pandemic in April 2020, but mortgage borrowing remained positive. In contrast, UK households have been repaying consumer credit in each of the past seven months.
The latest data for March 2021, for example, shows lending to individuals totalling £11.3bn. This includes £11.8bn mortgage borrowing and net repayments of both credit cards and other consumer credit of £-0.4bn and £-0.2bn respectively.
A new high in monthly net borrowing of £11.8bn (Source: BoE; CMMP)
Monthly net borrowing hit £11.8b in March 2021, the strongest net borrowing since records began in 1993. Net borrowing had averaged £6bn over the previous six months, with a gradually rising trend. The large jump in March reflects expectations that temporary stamp duty tax relief would be ended in March. This has now been extended to the end of June 2021. The previous peak in monthly net borrowing (£10.4bn) occurred in October 2006.
Trends in approvals for house purchase (Source: BoE; CMMP)
Approvals are below their November 2020 peak but remain relatively strong. The number of approvals for house purchases has fallen from 103,100 in November last year to 82,700 in March 2021. The latest approvals are 45% and 32% above the 56,945 and 62,663 approvals in March 2020 and March 2019 respectively.
Effective rates on new mortages and on the outstanding stock (Source: BoE; CMMP)
Margin pressures are easing as the effective rate on new mortgages continues to rise, but remain a challenge for mortgage providers. The effective rate of interest paid on the outstanding stock of mortgages has been stable during 1Q21 but at a new low of 2.08bp, down 4bp YTD. The effective rate on new mortgages has risen to 1.95% from the series low of 1.72% in August 2020. So while margin pressures remain, the spread between the effective rates has narrowed to 13bp.
What now for UK mortgage providers?
Against this cyclical backdrop, digital transformation remains the primary challenge for the sector as providers seek to meet their customers’ needs more effectively while delivering operational efficiencies.
Experience across Europe shows how digitilisation is already delivering tangible results across operations, sales and risk. Examples include: the automation of credit applications to deliver 70% FTE reductions; improved risk scoring for first time borrowers; micro-segmentation to support more targeted sales; and optimised treasury and liquidity management.
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.
Positive volume trends (outstanding balances, monthly flows, YoY growth) for UK mortages in 4Q2020 (Source: BoE; CMMP)
The key message
UK mortgages provide some relative cheer among otherwise downbeat messages from the money sector:
Individuals borrowed £5.6bn in the form of mortgages in December 2020, unchanged from November, while repaying £1.0bn in consumer credit.
Quarterly flows (£15.9bn) in 4Q2020 were the highest since 1Q2008.
Despite this strong recovery, mortgage borrowing in 2020 (£43.3bn) was lower than in 2019 (£48.1bn) and current demand remains subdued in relation to previous cycles.
Looking forward, mortgage approvals (103,400) were the second highest since August 2007, and suggest positive future volume trends.
The effective interest rate on new mortgages rose 7bp in December to 1.9%, the highest rate since October and the spread between this and the rate on the outstanding stock narrowed to 22bp, from 55bp in February 2020.
Among mortgage providers, the sector winners are not simply riding these trends but are also increasingly embracing digitalisation across operations, sales, finance and risk management to differentiate themselves and improve the experience for their members.
The six charts that matter
Monthly flows in UK retail lending (£bn) for 2020 (Source: BoE; CMMP)
The UK mortgage market continues to provide some relative cheer among otherwise downbeat messages from the money sector (see chart above). Individuals borrowed an additional £5.6bn in the form of mortgages in December 2020, broadly unchanged from November. In contrast, households repaid £1.0bn in consumer credit, having repaid £1.5bn, £0.6bn and £0.8bn in the three preceding months.
UK mortgage volumes “bounced back” strongly from 2Q low (Source: BoE; CMMP)
Quarterly mortgage flows totalled £15.9bn in 4Q20 compared with £11.1b, £3.8bn and £12.5bn in the three preceding quarters respectively. As can be seen in the chart above, this was the largest quarterly flow in the past five years and the largest since 1Q2008.
But real growth remains subdued in relation to past cycles (Source: BoE; CMMP)
Despite this strong recovery, however, total 2020 mortgage borrowing of £43.3bn was below 2019’s total of £48.1bn. Current mortgage demand also remains subdued in relation to past cycles (see chart above). In real terms, the 3-month MVA for mortgage demand was only 2.3% in December 2020, essentially stable real growth over the 2H2020
Trends in approvals for house purchases (Source: BoE; CMMP)
.Looking forward and more positively, mortgage approvals, which have proved a reliable indicator of future lending, were 103,400 in December, the second highest level since August 2007 (see chart above), and totalled 818,500 in 2020, the largest yearly number since 2007.
Effective interest rates on new mortgages and on the outstanding stock (Source: BoE; CMMP)
The effective interest rate on new mortgages rose 7bp in December to 1.9%, the highest rate since October 2019 (see chart above). This rate remains below the rate on the outstanding stock of mortgages (2.12%) but the spread between the two effective rates has narrowed to 22bp from 55bp in February 2020 (see chart below).
Downward pressure on NIMs starting to ease? (Source: BoE; CMMP)
Among mortgage providers, the sector winners are not simply riding these trends but are also increasingly embracing digitalisation across operations, sales, finance and risk management to differentiate and improve the experience for their members.
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.
