Mortgage borrowing was curbed by the end of the stamp duty holiday in September, but low interest rates and the race for space are keeping the market buoyant.
Net borrowing of mortgage debt by individuals amounted to £1.6 billion in October, down from £9.3 billion in September, according to the latest Bank of England data. This is the lowest since July 2021 when individuals repaid £2.2 billion of mortgage debt, on net.
October’s decrease was driven by borrowing brought forward to September to take advantage of stamp duty land tax relief before it was completely tapered off.
John Phillips, national operations director, Just Mortgages, said: “After what feels like an eternity, we have finally made it past the stamp duty holiday. The clouds are clearing and a true picture of the mortgage market is starting to come into focus.
“While the urgency has been taken out of the market, and approvals for purchases fell slightly October, there is still significant interest in purchasing. Outside space is still highly desirable, and the trend for working from home seems set to stay for a significant number of employees, resulting in some looking to move.
“With rates at a new series low, approvals for remortgaging increased. This trend is set to continue, with remortgaging taking centre stage in the final month of the year.”
The net borrowing in October was £4.6 billion below the 12-month average to June 2021, when the full stamp duty holiday was in effect. Gross lending fell sharply to £19.3 billion in October, from £30.7 billion in September. Gross repayments fell to £18.2 billion from £20.6 billion in September.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “Net mortgage borrowing dipped in October, which is not surprising following the flurry of activity in September as buyers brought forward moves in an effort to take advantage of the stamp duty holiday. With house purchase numbers falling, although still close to the 12-month average, the market is settling down a little after what has been a frenzied few months.
“With the effective interest rate on new mortgages falling to 1.59%, a new series low, borrowers continue to benefit from low interest rates and competition among lenders. We have seen the dynamic nature of mortgage pricing pause a little as lenders take stock, with rates on lower loan-to-value mortgages rising while on higher LTVs they have been falling. A 95 per cent LTV two-year fix is cheaper now than it was two years ago, making life easier for first-time buyers, who are so important to the overall health of the housing market.”
Approvals for house purchases, an indicator of future borrowing, fell to 67,200 in October, from 71,900 in September. This is the lowest since June 2020, and is close to the 12-month average up to February 2020 of 66,700.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages fell 19 basis point to 1.59% in October, which is a new series low. The rate on the outstanding stock of mortgages ticked down 1 basis point to a new series low of 2.03%.
Richard Pike, Phoebus Software sales and marketing director, said: “The problem for the market at the moment doesn’t appear to be appetite, it is rather one of supply. With Propertymark reporting an average of 24 buyers per home on the market it is becoming almost untenable. Add to that the fact that we are not building the number of homes we should be and the supply problem is, as ever, a huge stumbling block to the long-term health of the housing market.
“Nevertheless, the fact that the prospect of rising interest rates is not discouraging people from looking for a new home, is encouraging in itself. It will be interesting to see whether current appetite continues in the face of potential further coronavirus measures as the government assesses the threat from this new variant.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “These figures are interesting because they demonstrate a tipping point for the property market as the impact of the stamp duty holiday and the number of brought forward purchases was laid bare. Nevertheless, we have found at the sharp end there are still many trying to take advantage of low interest rates before their seemingly inevitable increase and buy houses rather than flats which are still lagging behind in the popularity stakes, particularly those without outside space.
“Looking forward, we don’t see too much change although we are expecting the bounce back in listings between December and January to be stronger than usual as buyers and sellers come to terms with the new normal.”
Source: Show House News