Mortgage borrowing hits all-time high

Latest Bank of England (BoE) figures show that UK homeowners borrowed a record £11.8 billion more on mortgages than they repaid in March, with market activity driven by the stamp duty holiday and low mortgage rates.

Gross mortgage borrowing hit £35.6 billion in March, with buyers looking to tie up property purchases ahead of the end of the stamp duty holiday, a tax break that was extended in the recent Budget, despite mortgage approvals dropping from 87,000 to 83,000 in March, they remained higher than the 73,000 recorded in February 2020.

The report also reveals a net consumer credit repayment of £535m, including people’s borrowing using credit cards, personal loans and overdrafts.

Commenting on the figures Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown said “You can feel the optimism bubbling over in the new saving and borrowing figures, as the vaccine rollout continued apace and the country prepared to reopen for business. Mortgage borrowing set new records in March, and while saving levels remained high, debt repayments started to tail off, as we dusted off our credit cards ready for a summer of spending.”

“The boom in mortgages is partly explained by buyers rushing for the old stamp duty deadline. In the end, the deadline was shifted to June, but buyers were already committed and keen to get the whole thing over and done with as soon as possible. We know from subsequent months’ data that renewed optimism among buyers means the boom in house-hunting has continued. And because it hasn’t been accompanied by the same enthusiasm for house-selling, prices are on the march again.”

“Debt repayments have slowed, as we revamped everything from our wardrobes to our gardens in preparation for being able to socialise outside. We saw something similar in June last year, which was followed by a return to borrowing with enthusiasm over the summer. We can expect credit card spending to ramp up again over the next few months.”

“However, we remain committed to saving, putting away another £15.7 billion during the month. The strength of saving was something we hung onto during the summer last year too. It fell from lockdown levels, but remained above pre-pandemic saving. There’s hope that even in more optimistic times we’ll maintain our savings, and that the one in four people who told us they still don’t have any emergency savings, have an opportunity to put away some cash for the future.”

Jaidev Janardana, CEO at Zopa said “Throughout the pandemic, we have observed that many people have spent less and used some of their savings to pay back credit cards and loans. As a result, they are coming out of the pandemic with improved finances.”

“Many consumers want to continue this into their ongoing life, and Zopa’s product features like no early repayment fees, and creating safety nets on your credit card encourage customers to do so.”

“Our data also shows that as people’s confidence has improved, probably fuelled by positivity over the progress seen in the vaccine roll out, which means they want to kick off long delayed life plans – and we can see that over 2021 through increases in loan demand and car finance levels going up.”

“There is also pent up demand for experiences and variety as our own credit card data shows that spending per customer increased 70% from January 2021 to April 2021 as non-essential retail and outdoor hospitality reopened. We expect to see spending go even higher as indoor hospitality opens later this month.”

Richard Pike, Phoebus Software Sales and Marketing Director, said “We’re getting used to seeing these types of figures for mortgage approvals.  The stamp duty holiday lit the fire and will continue to drive the market until it comes to an end. It is good to see the housing market as buoyant as it is, but it’s also causing some consternation.”

“House prices are being driven up, with estate agents reporting many buyers offering over the asking price to secure their preferred property.  How sustainable this is, when lenders are tied by strict affordability guidelines, is debatable.  If the housing market is helping to drive the nations’ recovery in an unsustainable manner, will we be generating problems further down the track?  Even with 95% mortgages available again the chances for many younger people, trying to get onto the property ladder, are becoming fewer as prices spiral upwards.  At the moment it looks like we’re creating an unlevel playing field, especially for first-time buyers.”