Mortgage borrowing recovers £3.6bn from April ‘slump’

Mortgage borrowing recovers £3.6bn from April ‘slump’

Net mortgage borrowing rebounded to £6.6bn in May, from £3bn in April, according to the Bank of England's latest data.

In April, mortgage borrowing experienced a steep £8.4bn dip, following record borrowing of £11.4bn in March.

This rebound was complemented by the "relatively low” share of mortgage borrowers falling behind on debt repayments during the pandemic, according to Bank of England data published yesterday.

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“April’s slump in mortgage borrowing has proved to be nothing more than a blip,” said Paul Stockwell, Gatehouse Bank’s chief commercial officer.

“Thanks to the shifting stamp duty holiday deadlines, 2021’s property market has thus far been a rollercoaster, and the ride is likely to continue the same surge and retreat pattern in mortgage lending in June and July as we cross another stamp duty boundary.”

Stockwell predicted “a similar recovery” in August, “when the whole process starts again, albeit on a smaller scale, as the final discount ceases at the end of September”.

As of July 1, the stamp duty threshold shrinks to £250,000. This deadline has prompted many in the market to speculate a slow third quarter for house transactions.

For now though, mortgage approvals for house purchases are stable. In May, the Bank of England counted 87,500 approvals, up slightly from 86,900 in April, but lower than the November 2020 peak of 103,200.

These numbers prompted mortgage expert at Quilter, Karen Noye, to highlight the “scrambling to take advantage of the stamp duty holiday” which was happening around the November peak ahead of the then-not-extended deadline of March 2021.

She said: “For some time, the housing market has been propped up by government schemes and initiatives.”

Aside from the stamp duty break, since March 2020 government schemes have allowed borrowers to temporarily freeze mortgage and unsecured loan repayments, providing a cushion against any fall in income. These have helped mortgage holders in particular.

“Though payment deferrals were available to borrowers with either mortgage debt or unsecured debt, they appear to have had more of an impact in supporting those with mortgages,” the Bank of England said yesterday.

UK Finance figures suggest around one in six UK mortgages were on payment deferrals around their peak in June 2020. 

Noye believes once “the government’s helping hand has been withdrawn”, the market “may see people opt for a wait and see approach and mortgage borrowing could plummet”.

Despite this, Noye said the central bank’s latest figures also suggested “people potentially starting to let their financial guards down again”.

As well as a mortgage borrowing rebound, the data showed for the first time since August 2020 consumers borrowed more as consumer credit than they paid off in May. 

“This increased willingness to spend will be a welcome sign for the Treasury and may be a signal of people starting to believe that the worst of the pandemic is over and therefore feel more secure in taking on more debt,” said Noye.