UK mortgage lending jumps to highest level since June

·3 min read
UK mortgage lending jumps to highest level since June
According to Bank of England data, total mortgage approvals for house purchases, fell to 72,600 last month, down from 74,200 in August. Photo: PA

Brits borrowed £9.5bn ($13.1bn) of mortgage debt in September, the highest level since June.

The figure is above the £6.8bn average over the last six months, as potential homeowners raced to complete deals before the stamp duty holiday was scaled back, and eventually wound down at the end of September.

According to the latest data from the Bank of England (BoE), total mortgage approvals for house purchases, an indicator of future borrowing, fell to 72,600 last month, down from 74,200 in August. 

However, this was still higher than the pre-COVID levels in February 2020.

Approvals for remortgaging, which captures remortgaging with a different lender, rose slightly to 41,500 in September. This remains low compared to the months running up to February 2020, but is the highest since March 2020.

Chart: Bank of England
Potential homeowners raced to complete deals before the stamp duty holiday was scaled back, and eventually wound down at the end of September. Chart: Bank of England

“This is likely to be the last set of numbers from the Bank of England where the effective interest rate on new mortgages falls as several lenders, including Barclays, HSBC, NatWest and TSB, have all since raised their pricing in anticipation of a base rate rise next week,” Mark Harris, chief executive of mortgage broker SPF Private Clients, said.

“Whether base rate rises or not, mortgage rates have started edging upwards as the markets have already priced in a rate rise, and possibly two or three more by the end of next year.”

Traders are betting that Threadneedle Street will begin hiking interest rates from record lows as early as next month, with benchmark rates expected to rise to 1.25% by the end of next year.

The low rates have helped ramp up demand in the UK property market, with house prices surging in most parts of the country.

Read more: UK house prices could surge as fewer properties come on market

Laura Suter, head of personal finance at investment broker AJ Bell, said: “Homeowners need to be aware that it’s a case of when not if for an interest rate rise now and the clock is ticking on the record low mortgage rates we’ve all become accustomed to.

The report on Friday also showed that consumers borrowed an extra £200m. Credit card lending was up almost £600m, marking the strongest level of net borrowing since July 2020.

Individuals also repaid £400m of other forms of consumer credit, such as car dealership finance and personal loans. This was the first net repayment since February 2021, the figures showed.

The effective rate on new personal loans increased to 6.02% in September, the highest since March 2020 but still below the January 2020 level.

Read more: UK average credit card spend at highest level in 8 years

Households’ net flow into deposit accounts declined last month to £9.4bn while deposit interest rates in September were broadly unchanged and remained at historically low levels. The effective interest rate on interest-charging overdrafts in September increased by 8 basis points to 20.74%.

The BoE added that large businesses borrowed £1bn in loans from banks in September, whilst small and medium sized businesses repaid £1.4bn.

Private non-financial companies redeemed £1.9bn in net finance from capital markets in September, compared to an average net issuance of £900m in the twelve months to August.

Watch: Should I pay off debt or save money during the coronavirus pandemic?

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