Household finances as lockdown measures ease

Mortgage approvals rose by 20% last month, compared to February last year, as buyers rushed to secure mortgage deals before the original end of the stamp duty holiday.

The latest Bank of England lending data shows a 10% decline compared with the borrowing levels recorded in January, but mortgage borrowing in February still exceeded that seen before the 2008 global financial crisis.

With an extension to the stamp duty holiday until September announced in the Budget, borrowing figures have remained strong in March.

Compared to the 10-year average of 63,500 mortgage approvals, the February figures were 38% higher.

Another positive indicator for the property market is a return of some high loan-to-value products, suggesting that lenders are cautiously returning to their pre-Covid lending practices.

There is a significant demand for property purchases, including second properties, outside of London, with the Cotswolds and New Forest especially popular among second home buyers who are considering a different lifestyle.

The Bank of England data also reported that gross lending to households rose 3.8% month-on-month in February.

However, households continue to accumulate cash savings, with the total amount of household liquid assets rising by £15.8 billion in February.

According to the Bank, this means household ‘excess savings’ have risen to reach £150 billion, or 7.1% of GDP.

Policymakers hope that a good chunk of these excess cash savings will find their way into the economy once lockdown restrictions are lifted, helping to support the UK’s economic recovery.

Also looking at household finances, insurer Scottish Widows found that many families remain under financial pressure in the first quarter of the year.

The latest Scottish Widows UK Household Finance Index registered 42.0 in the first quarter of 2021, up from 41.1 in the final quarter of last year.

While remaining below the neutral value of 50.0, the index now shows the slowest deterioration in UK household finances since the onset of the pandemic last March.

The monthly data from Scottish Widows showed an increased resilience during the first quarter, with positive signals that household sentiment is improving thanks to relaxing lockdown measures.

Jackie Leiper, Pensions, Stockbroking & Distribution Director, Scottish Widows, said:

“Families’ finances remained under pressure as lockdown continued, with shrinking income from employment, higher living costs and a continued squeeze on cash. However, the glimmer of hope is that the latest dip in overall financial wellbeing was the slowest since the start of the pandemic, as people focused on paying down existing debt, which saw the quickest fall since the survey began in 2009.

“This was also supported by a desire to build financial resilience, as saving for an emergency or rainy day was the biggest priority for households in Q1 despite one in five saving less for retirement in the same period.

“With a clearer roadmap towards the lifting of restrictions and opening up of sectors forced to pull the shutters down over the past 12 months, attitudes towards major purchases continued to lift from the record lows of last spring.

“While expected pent up demand as hospitality and travel sectors gear up for reopening and people look forward to doing things again, it’s important not to lose momentum on building financial resilience for the long term.”