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More signs of lacklustre housing market

UK house prices rose at their slowest pace in seven months in March, according to Nationwide building society, supporting views that momentum in the housing market is fading. House prices rose 2.1% in the year to March, slowing from a 2.2% increase in February.

Nationwide said subdued consumer confidence and below-inflation wage growth had offset historically low unemployment and borrowing costs. It expects house prices to remain broadly flat over the course of 2018 “with a marginal gain of around 1%”.

Separate data from trade body UK Finance showed that the number of mortgages approved by UK banks for house purchase during February fell by 11% compared with the same month last year. However, there was a 10% increase in remortgage approvals compared to last year, as borrowers locked in to attractive deals, amid speculation of further interest rate rises later this year.

UK Finance said the amount outstanding on credit cards increased by 6.3% from February last year – the largest rise in 10 months. This outweighed a decline in the amounts outstanding on personal loans and overdrafts.

Howard Archer, chief economic adviser to the EY Item Club, said: “Despite February’s modest rise in unsecured consumer credit growth, the impression remains that consumers have recently become more cautious in their borrowing while lenders have become warier about advancing unsecured credit.”

Nevertheless, the Bank of England is concerned that risky mortgages are making a comeback. Lenders are doing greater amounts of high-loan-to-value lending, according to the board minutes of the latest Financial Policy Committee meeting. If this continues, the committee said it would consider ordering lenders to raise their financial reserves.

Turning to other business sectors, British manufacturers said they are planning to step up investment as factories operate near full capacity. An assessment by the Bank of England’s regional agents, of the first three months of 2018, said: “Robust growth in goods exports had tightened capacity and, together with improving profit margins, strengthened investment intentions in manufacturing slightly.” However, the report highlighted “some evidence” of financial distress in the retail and leisure sectors, reflecting weak consumer spending growth.

Figures from the Society of Motor Manufacturers and Traders said that the number of cars made in the UK fell by 4.4% on the year in February. Exports of UK-made cars have remained steady, but domestic demand has fallen for the seventh consecutive month. Output for the UK was down 17%.

While demand for cars might have dropped, British consumers are still in spending mood, according to GfK’s consumer confidence index, which rose three points to minus seven in March.

Jo Staton, head of experience innovation UK at GfK, said: “The prospect of wage rises finally outstripping declining inflation, high levels of employment with low-level interest rates, and finally some movement on the Brexit front appear to have boosted our spirits.”


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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

 

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