The Bank of England has reveal that mortgage borrowing strengthened in February with individuals borrowing an additional £6.2 billion secured on their homes.
This was supported by the expected ending of the temporary stamp duty tax relief at the end of March, which has now been extended to end of June.
February saw the strongest net borrowing since March 2016 (£7.2 billion), when borrowing was also boosted by changes in stamp duty. The strength on the month reflected higher gross lending of £27.7 billion, close to March 2016 (£27.9 billion).
The Bank said the strength in mortgage borrowing follows a large number of approvals for house purchase. In February, there were 87,700, which – while down from a peak of 103,700 in November 2020 – was well above the monthly average in the six months to February 2020 (67,300). Approvals for remortgage (which only capture remortgaging with a different lender) rose slightly to 34,300 from 32,600 in January 2021.
The ‘effective’ rate – the actual interest rates paid – on newly drawn mortgages rose six basis points to 1.91% in February. That is slightly higher than the rate in January 2020 (1.85%), and compares with a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained at series low (2.09%).
Nitesh Patel, strategic economist at the Yorkshire Building Society, said: “The number of mortgage approvals for new house purchases slipped from 97,350 in January to 87,669 in February. Whilst this represents a decline of 9%, it still suggests demand is strong. It is likely that many buyers were trying to take advantage of the stamp duty holiday before it ended in March, which has since been extended until the end of June.
“The market has been on an upward trajectory, despite rising house prices and continued economic uncertainty, with buyers refusing to be deterred from the buying the biggest ticket item of them all. There is growing evidence that larger homes are currently the most desirable: since March 2020, sales of detached homes have grown from 22% to 28% of all transactions. Flats now account for a smaller share at 12%, down from 17% over the period.
“The outlook remains positive with the extension of stamp duty and the new Help to Buy Mortgage Guarantee Scheme, which will benefit those looking for low deposit mortgages. Additionally, the extension of the job support scheme is likely limit the rise in unemployment this year, further bolstering confidence in the housing market.”
