Mortgage borrowing hits record high

Latest Bank of England (BOE) data has shown that mortgage borrowing hit a record monthly high in June, climbing to £17.9 billlon. This marks a 163% jump on the £6.8bn recorded in May.

The increase came as buyers looked to complete deals before the stamp duty holiday started to taper. While the threshold at which tax on property sales applies was lifted to £500,000 from £125,000 amid the pandemic, as of 30th June it was reduced to £250,000. 

Approvals for house purchases fell to 81,300 in June, however, some way off the 86,900 seen in May. This is the lowest number of approvals for house purchases witnessed since July 2020, the BoE but remains above pre-February 2020 levels.

The data also indicated that consumers repaid £100 million in credit card debt and that households borrowed £300 million using consumer credit

Commenting on the BOE data Richard Lane, Director of External Affairs at StepChange, said “Today’s data from the Bank shows that, for the third month running, UK households in aggregate have returned to borrowing more than they repaid in consumer credit. But we shouldn’t forget that, for the hardest-pressed households, turning to borrowing to make ends meet was happening right through the pandemic too. Such households have accumulated a significant backlog of arrears.”

“At StepChange alone, we’ve already seen over 10,000 new clients over just the past couple of months applying for the Government’s new breathing space scheme to give them a short respite from collections activity while they concentrate on putting in place a plan to resolve their debts; we continue to believe further policy interventions will be needed to address the accumulated debt backlog that has arisen as a result of the pandemic.”

Whilst Paul Heywood, Chief Data & Analytics Officer at Equifax said “This month’s Money and Credit statistics show that for the second month in a row consumers borrowed more than they paid off, albeit slightly less than they borrowed last month. This boost in borrowing, driven by an increase in demand for mortgages, motor finance, and personal loans, is a sign of strengthening consumer confidence, and bodes well for the UK’s economic recovery. Furthermore, it appears that some of the savings habits developed by the nation during the pandemic are sticking around, improving individual financial resilience while barely dampening the summer spending surge we would usually expect.”

“The good news is that thanks to furlough and payment holidays, we haven’t seen a huge spike in arrears and defaults, but we’re not out of the woods yet. Our own data showed that July evidenced a level of income shock amongst lower earners, despite the reopening of hospitality and greater confidence in the job market. 14% of low earners and 17% of high earners evidenced a level of income shock in July, and while it is unlikely to be enough to derail the recovery, it is something that will be playing in the mind of lenders as demand for credit begins to recover back toward pre-pandemic levels.”

Richard Pike, Phoebus Software Sales and Marketing Director, said “A dip in mortgage approvals in June could be the first sign that the market is settling back to some sort of normality after the frenetic action we’ve seen recently.  Coupled with Nationwide’s reported fall in house prices you could be forgiven for thinking we are heading for another downturn.  However, there is one factor that is likely to keep the market moving for both purchase and remortgaging, and that is mortgage interest rates and the current flurry of fixed-rate deals that are being announced on an almost daily basis.  It appears that lenders are determined to keep the momentum going, and with 2-year fixes as low are 0.75% there is plenty of incentive for borrowers.”

“With high st banks and building societies reporting record mortgage growth this year, there is plenty of scope for these historically low-interest rates and we can expect to see more and more tempting deals.  We are already seeing remortgage activity gaining momentum, as the supply of properties coming to market slows. As current fixed rates come to an end we may see the pendulum swing from record purchase levels back to a growing remortgage market.”

Following the release of the BoE’s Money and Credit statistics this morning, which showed a second consecutive month of net positive consumer borrowing, and a relatively strong level of household deposits, Paul Heywood, Chief Data & Analytics Officer at Equifax UK offers comment on their significance for the UK’s credit market.