However, February's third consecutive monthly rise, which, according to the Bank of England, was a 1.7 per cent gain to 61,670, still leaves approvals 11.6 per cent lower than they were a year earlier. Meanwhile, remortgaging approvals also rose 1.7 per cent to 32,099, but remain stuck in a narrow band recorded over the past six months.
Two significant factors come into play here. The first is that banks restricted mortgage availability in the second half of 2014 as a result of tighter regulations and worries about a stress test that included a 35 per cent fall in house prices. These fears have been assuaged to some extent by news that the new stress tests include a less onerous 20 per cent fall in house prices.
It would have been reasonable to expect the current favourable climate to stimulate a faster rate of mortgage approvals, but the second factor bearing down on increased borrowing is that there aren't enough pre-built houses coming onto the market. In fact, new sales instructions have been negative in 11 of the past 14 months.
Almost certainly, this has much to do with proximity of the general election. It's hard to see the next government, whatever its colour and composition, making sweeping changes to affect the housing market. By and large, all political parties are singing from the same hymn sheet when it comes to boosting housing supply. However, delving into the history books reveals that transactions fall by an average of 15 per cent in the run up to a general election, so it's not unreasonable to suppose that activity will pick up after the election is out of the way.
The plot thickens when we look at the market for newly built houses. Here, the major house builders are having no problem at all in filling their order books. East London specialists Telford Homes (TEF), for example, has pre-sold production for years in advance.
Moving away from a London market inflated by interest from overseas investors, the bullish tone prevails. Bovis Homes (BVS) reported strong sales in the first two months of this year, and is looking to double output over the next three years. Bellway (BWY) revealed that in February and March reservations were 10 per cent higher than a year earlier, while Barratt Developments (BDEV) said that total forward sales are up 17.5 per cent.
Using conventional metrics, many of the house builders are not over priced, and even those that look expensive are offering big dividend payouts over the next five or six years. However, applying conventional metrics to an unconventional market doesn't cast much light on the true value of house builders. The UK economy is enjoying a sustained period of recovery; mortgage rates are at a record low, and the supply/demand imbalance has never been greater. It's worth remembering that house builders were not responsible for the last housing bubble; that's partly down to the banks offering people loans they couldn't afford to repay on the slightest change in the wind direction.
It would be nice to think that the current cycle is more sustainable. House builders don't like double-digit gains in average selling prices because, nice as it is in the short term, it's unsustainable in the long term. Some increase in average prices is welcome - consensus forecasts are looking for a gain in the region of 5 per cent this year. This will be more than enough to offset the inflationary build-up on the supply side. The whole industry has been boosting its efforts to engage with more school leavers to join the industry in an effort to replace the swathe of skilled labour, notably brick layers and electricians that were unceremoniously dumped in the downturn.
Higher costs are still there as a result of the labour supply/demand imbalance, and there is certainly an element of catch-up as suppliers such as brick manufacturers claw back margins after more than half a decade of price freezes. However, land inflation remains benign. Builders have set themselves hurdle rates on new land in order to maintain a reasonable return on equity. And with most small private builders struggling to raise finance, the market remains relatively orderly.
Will shares in house builders level off over the coming months? This does happen fairly regularly, as sales settle back after the spring selling season. But the long-term picture remains encouraging. For those keen to realise the dramatic gains accumulated over the past year, cashing in some shares is an option, while introducing some form of stop loss on the remainder.
