Home lending in the UK reached £22.2 billion in May, some 8.8% higher than the same month last year but fell by 3.8% month on month, the latest published figures show.
Increased lending over the year was drive by remortgages rather than loans to new buyers, the data from UK Finance reveals. Indeed, remortgages increased 18% year on year.
In contrast, approvals for house purchases were 3.8% lower in May 2018 compared with the same month a year earlier.
‘May’s increase in mortgage approvals was driven by strong growth in remortgaging, as a large number of fixed term mortgages came to an end and home owners took advantage of a competitive market to shop around for attractive deals,’ said Eric Leenders, managing director of personal finance at UK Finance.
‘Increased efforts by lenders to contact their customers before their current mortgage deal expires have also contributed to this rise,’ he added.
Expectations of an interest rate rise could also be contributing to an increase in remortgages, according to Henry Woodcock, principal mortgage consultant at IRESS. ‘The increase in lending has continued, driven by homeowners and landlords looking to remortgage as fixed rates end. Many market commentators expect a base rate rise by the Bank of England in August, so this could also have been a contributing factor to the increase in mortgage lending,’ he said.
‘Lenders typically start to increase the cost of borrowing when they feel a base rate rise is on the horizon, but we’re seeing some unusual behaviour at the moment. Many seem to actually be offering competitive deals for fixed rate home loans in a rush to attract customers hoping to secure a mortgage ahead of a potential interest rates rise,’ he explained.
He pointed out that the latest Bank of England survey of household finances also suggests a positive outlook, identifying few instances where a modest increase in mortgage interest rates would detrimentally impact borrowers. ‘So June is looking like it might be a good month for mortgage lending,’ he added.
John Phillips, group operations director at Just Mortgages and Spicerhaart, believes that stamp duty rates need to be cut to get the mortgage market moving. ‘For house purchase to really pick up, the Government needs to think about making some real changes. First time buyers have seen some good initiatives such as stamp duty cuts and Help to Buy but they are obviously not enough to really get things moving,’ he said.
‘It shouldn’t be that difficult for people to purchase their first home and more needs to be done to help. Ideally, I would like to see stamp duty cut altogether, for everyone, because it is really stifling the market,’ he added.