Mortgage borrowing increased by £5.3bn in August

30th September 2021

Latest Bank of England data has shown that net mortgage lending increased by £5.293 billion in August, bouncing back from July’s net repayment of £1.758 billion. Gross mortgage lending increased to £21.5 billion, recovering from a low seen in July when lending came in at £16.6 billion.

Meanwhile, mortgage approvals fell to the lowest level for more than a year, with the 74,453 home loans approved down on the 75,100 recorded in July.

The Bank of England figures also revealed that consumer borrowing rose in August, increasing by a net £351m after a rise of just £32m in July. The overall level of such lending remains 2.4% lower than it was a year earlier.

Commenting on the Bank of England latest data, StepChange Debt Charity says that among those hardest hit by the pandemic, borrowing on credit to meet essential living costs remains a widely-used short-term coping strategy.

The charity has also today released its monthly client data report, which shows an uptick in the proportion of new clients who are in full-time employment at the time they seek help. In August, 40% of clients were in full-time employment, having shown a gradual rise over the course of 2021, up from 36% over 2020 as a whole.

The average client rent arrears among those new clients who were tenants stood at £1,733 in August, reinforcing the fact that rent debt is a major impact of the pandemic – the 2020 average was £1,463 and the 2019 average was £1,084.

Richard Lane, Director of External Affairs at StepChange,said “Lending to individuals in August was restrained overall, but what we continue to see from our perspective as a debt advice charity is a two-speed exit from the pandemic. Some households have managed to cut their costs and cut their debts, but a less fortunate group – typically those who already had less in the way of savings, income and general financial resilience – are still struggling with significant additional accumulated debt, and the prospect of higher costs and reduced income just around the corner. We urge the Government to focus on how to cushion the emerging difficulties for this group by maintaining the Universal Credit uplift and introducing an income-contingent rent debt rescue scheme.”

Whilst Andy Piggott, director of core credit at TransUnion in the UK, said “The latest figures from the Bank of England point to volatility in the consumer recovery from the pandemic, with growth below historical levels, and this is reflected in the decreased consumer optimism noted in our latest Consumer Pulse report.”

“Despite increased summer spending in August, which saw the annual growth rate for consumer credit increase slightly compared to July, the Money and Credit statistics show that consumers borrowed just £0.4 billion of credit last month, which remains well below the average £1.2 billion monthly figure seen in the two years to February 2020.”

“The data also reveals that individuals borrowed £5.3 billion of net mortgage debt in August, following a net repayment of £1.8 billion in July. However, net borrowing in August was £1.4 billion below the 12-month average to June 2021, when the full stamp duty holiday was in effect. Figures for mortgage approvals, which indicate future borrowing, dropped from 75,100 in July to 74,500 in August, which is the lowest level since July 2020, although this decrease doesn’t come as a surprise, given stamp duty freezes will be tapered off this autumn.”

“Our own Consumer Pulse research has shown that consumer optimism dropped in Q3, down to 54% of UK consumers saying they were somewhat, very, or extremely optimistic about the future, compared to a peak of 61% in Q2 2021. This appears to be reflected in the fact that there are real fears over the long-term recovery following the pandemic, with 24% of consumers expecting their household income to decrease in the future.”

“However, this consumer research was undertaken before the first signs of the potential cost of living crisis were beginning to be felt in the UK, with looming increases in energy, fuel and food bills likely to complicate the picture further – highlighting just how bumpy the road to a full recovery could be. Whether this will translate to an uptick in consumer borrowing remains to be seen.

“Although the latest Bank of England insights suggest there has been a slowdown of sorts in the recovery to date, it’s important to remember that the economy is still in a far better position that it was this time last year. We will, however, inevitably continue to experience some volatility as consumers negotiate future challenges without the help of emergency job support schemes. As such, it’s critical that finance providers are attuned to potential fluctuations in their customers’ financial circumstances and use data and insights to help them make informed lending decisions, as well as supporting those that may be facing financial difficulties.”

Jonathan Sealey, CEO at specialist lender Hope Capital, said “Of course, it was to be expected the level of borrowing would not compete with the record borrowing in June, which was undoubtedly owing to the opportunities created by the stamp duty holiday.”

“After the rush to meet the deadline, it was obvious we were going to see a more sustainable level of activity in the aftermath. However, moving forward, it is crucial the desire to buy properties does not flake.”

“Today’s Bank of England statistics also reveal that while mortgage approvals for house purchase were down on recent high levels, they were still 12% higher than pre-pandemic average, which is reassuring.”

“Ultimately, the availability of competitive rates, high LTV’s and innovative solutions, will undoubtedly be the driver in ensuring there are plenty of opportunities to be seized by borrowers, now we begin to approach the end of 2021.”

Richard Pike, Phoebus Software sales and marketing director, says “The inevitable slow down in mortgage approvals is apparent in these latest figures but, in the greater scheme of things, the market is still looking fairly healthy. We are now heading into uncharted waters however, as furlough ends and we see for the first time the impact that will have on the labour market. We are seeing unprecedented levels of job vacancies that, should those currently on furlough find themselves out of work, could start to be filled. This would give a much needed boost especially to services industries.”

“Nevertheless, as Bank of England Governor Andrew Baily warned earlier this week, labour and supply shortages are pushing prices up and inflation, he says, is likely to go over the predicted 4%. This means interest rates are highly likely to increase before the end of the year. So, while lenders continue to offer historically low interest rates the housing market should keep going in its current vein. At least in the short term.”