Lending for homes in the UK reached £22.5 billion in August, up 7% on the previous month and 15% year on year, the latest published figures show.
It is also the highest August figure since 2007 when gross lending reached £33.6 billion, according to the data from the Council of Mortgage Lenders which represents the vast majority of lenders in the country.
CML senior economist Mohammad Jamei said that widely voiced fears in recent months about the housing market have proved to be wide of the mark. He explained that prospects for house purchase activity after the decision to leave the European Union looked slightly subdued when compared to late 2015 and early 2016.
‘However, sentiment in the market recovered in August. This is reflected in stronger than expected transaction figures, and in our gross lending estimate. This recovery in sentiment is likely to be down to a number of different factors, including the Bank of England’s monetary stimulus and its introduction of the Term Funding Scheme in August,’ he pointed out.
‘A subsequent uptick in approvals is anticipated, albeit still at levels lower than earlier this year as affordability constraints and lack of properties on the market for sale continue to bear down on borrowers. The Bank also continues to indicate another rate cut on the cards, if medium term prospects remain unchanged,’ he added.
John Eastgate, director of sales and marketing at OneSavings Bank, believes that mortgage market activity is slowly returning to its former health, as concerns over political and economic instability are pushed to one side by more prospective borrowers unwilling to wait indefinitely.
‘While the economy has slowed, talks of a recession seem to have faded, and the Bank of England has intervened to support economic growth, and with it the mortgage market. Against this backdrop, remortgaging has become the key driving force, as borrowers make the most of record low mortgage rates which, if anything, might fall even further,’ he said.
‘The affordability gap continues to drag on house purchase figures, and will do so for as long as housing demand outstrips supply, bolstering house prices in the long term. Buy to let demand has bounced back strongly in the summer, although we may see certain parts of the sector dampen depending on the outcome of the PRA consultation. That said, there may well be a short term flurry of activity as many landlords rush to buy or refinance before any criteria changes come into effect,’ he added.
According to Andrew McPhillips, chief economist at the Yorkshire Building Society, the figures indicate that housing supply has recovered slightly after the spike in house purchases earlier in the year which was caused by landlords rushing to beat the introduction of the new stamp duty.
‘We expect growth in lending to fluctuate in the coming months as many buyers and sellers are likely to postpone getting on the property ladder due to global economic uncertainty around factors such as the EU referendum and any potential steps the Bank of England may take in the future,’ he said.
‘Despite this uncertainty in the medium term, house prices are likely to continue to rise as the housing deficit remains a prevalent issue, which should drive growth in mortgage lending in the long term as people take out larger loans in order to buy a property. That said, the number of property transactions over the past few years has been relatively flat, and if house prices continue to rise in the long term it could cause transactions to fall which would have a knock on effect on lending,’ he added.
‘To address this issue, Britain must build more houses and also consider introducing measures which would enable more people to afford a property. For example, by making stamp duty a sellers tax rather than a buyers tax in order to support steady growth in transactions and make houses more affordable,’ he concluded.
The jump in lending is likely to have been due to more remortgaging after the Bank of England cut the interest rate to a new low of 0.25% in a response to Brexit, according to Ishaan Malhi, chief executive officer of online mortgage adviser Trussle.
‘With the economy on firmer footing than it was last month and a recession looking increasingly unlikely, borrowers will also be feeling more confident about their positions,’ he said.
He pointed out that it has been seven years since the previous base rate change, and some people will be unaware of how the cut could impact their own mortgage payments. ‘Home owners in the UK are each losing out on £2,844 a year by not switching to a better rate mortgage when the opportunity arises, some £22 billion annually across the country,’ he explained.
‘As banks and building societies pass the lower rates on to borrowers, and more people become aware of the substantial savings that can be made by switching mortgage, we may well see activity rise further in the coming months,’ he added.
