Gross mortgage lending in the UK in September was 5% higher than a year ago at £21.4 billion with two thirds of £13.7 billion carried out by High Street banks, the latest official figures show.
But the report from UK Finance warns that rising inflation continues to put pressure on household budgets and experts are expecting an interest rate rise next month which will impact on borrowing costs.
‘As we near the end of 2017, our data is showing that housing market activity has built up modest momentum since the start of the year, helped by an increase in first-time buyer numbers,’ said UK Finance’s senior economist Mohammad Jamei.
Having benefited from a decade of low interest rates, consumers are sensing the risk that this era is nearing an end, according to John Bagshaw, corporate services director of Connells Survey & Valuation.
He pointed out that many older mortgage deals are expiring this autumn which will mean moving onto more expensive standard variable rates. ‘As a result, home owners on these deals are opting to refinance, taking advantage of the intense competition in the mortgage market right now. With so much economic uncertainty and hints of a base rate rise, many are choosing to lock into a lower rate to see them through the next few years,’ he said.
Shilen Shah, bond strategist at Investec Wealth & Investment, pointed out that with the year on year GDP figure coming in at 1.5%, all indications suggest the Bank of England is likely to increase base rates at its November meeting with a rise of 0.25% to 0.5% likely. ‘The key uncertainty for the central bank is whether it will increase base rates any further in 2018,’ he added.
Markets have all but prices in an interest rate rise in November, according to Jacob Deppe, head of trading at online trading platform Infinox, the first in a decade, as the better than expected GDP figure will add to the pressure on the Bank of England’s Monetary Policy Committee (MPC) to hike rates.
Those looking to buy, in particular first time buyers, may miss the opportunity to secure a home loan on the lowest ever mortgage rates, according to John Eastgate, sales and market director of OneSavings Bank.
‘Mortgage lending has grown modestly since the start of the year and is heading towards the levels last seen in 2008. Despite growing concerns around affordability, much of this demand is coming from first time buyers, largely driven by Government initiatives such as Help to Buy. With a rate rise in the offing however, borrowers may well have to face up to the reality that they’ve missed the opportunity to secure the lowest mortgage rates in history,’ he said.
‘The mortgage market continues to demonstrate sustainable growth, but not without challenge. Real wage growth is in negative territory, and supply shortages continue to drive up prices, albeit modestly, in most parts of the country. Nevertheless, with property transactions on an even keel, neither seem to be a threat to ongoing growth,’ he added.
John Goodall, chief executive officer of buy to let specialist Landbay, believes interest rates will rise. ‘These more accommodating borrowing conditions are set to change in the coming months as the prospect of the first interest rate rise in almost a decade looms large, putting pressure on borrowers, and potentially putting off first time buyers,’ he warned.
‘September’s figures also offer some insight into the final month of lending before the PRA’s portfolio landlord changes came into effect. While these new regulations are a good thing for the sustainability of the buy to let sector, we may see a dip in lending in the coming months as the sector adjusts to both the new regulations and a possible rate change,’ he added.
