UK mortgage lending falls back after ‘frenzied rush’

UK mortgage lending fell back in April after reaching record highs as homebuyers rushed to borrow before the end of a stamp duty holiday, according to the Bank of England.

Net mortgage borrowing was £3.3bn in April, down from £11.5bn in March and lower than the £5.7bn monthly average in the six months to February, while gross lending and repayments surpassed levels at the beginning of 2020.

The fall followed a “frenzied rush” of housing transactions at the planned end of the stamp duty holiday, offering tax relief on the first £500,000 on residential property purchases, which had been due to end in March.

Increased demand as people sought to move home after months of lockdown fired up the UK property market and caused prices to rise 10.9 per cent over the year to May.

BoE data show housing transactions continued to rise at pace after the government extended the stamp duty holiday to the end of June. The number of mortgage approvals rose from 83,400 to 86,900 between March and April.

Mark Harris, chief executive of mortgage brokers SPF Private Clients, said it was no surprise that lending fell back in April, but that demand returned after the stamp duty window was extended to the end of June.

“With a number of lenders launching sub-1 per cent products, there is clearly an appetite to lend and cash available to do so,” he said.

“Cheap borrowing rates look set to be with us for a while at least and will continue to support demand for property purchases.”

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People have saved more than usual in lockdown, but there are early signs of increased spending as restrictions ease.

Households saved an additional £10.7bn in April in banks and building societies. This was less than the £16.1bn in March but still strong compared with the average monthly net deposits of £4.6bn in the six months to February 2020.

Consumers paid back less on their credit than in previous months, repaying £0.4bn compared with the past year’s monthly average of £1.7bn. Thomas Pugh, UK economist at Capital Economics, said the balance of repayments and deposits suggested people were funding spending by potentially dipping into their savings.

The likelihood of a savings splurge has revived the spectre of inflation after a period of modest price rises. Samuel Tombs, chief UK economist at Pantheon Economics, warned the “economy will overheat if households spend a significant portion” of the money put away in the pandemic.

He added that surveys and high levels of ad hoc mortgage repayments, which stood at £1.9bn in April compared with a two-year average of £1.5bn, suggested households were minded more to save than spend.

“These figures suggest that our assumption that households will quickly go back to spending the same share of their income as they did before the crisis is probably in the right ballpark,” Pugh said.

“But there is an upside risk that consumers spend more of their savings than we have anticipated.”


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