Bank of England  

Mortgage debt up £2.4bn but rate rises ‘take toll’

Mortgage debt up £2.4bn but rate rises ‘take toll’
Source: Financial Times

Net borrowing of mortgage debt climbed by £2.4bn in March, but experts warned rising rates have taken their toll on borrowing appetite as signs point to a “slowing” market.

Mortgage borrowing reached £7bn in March, up from £4.6bn in February. This is the highest monthly level since the final month of stamp duty relief last September, when borrowing hit £9.3bn.

But some experts were concerned rising rates and the Bank of England's “overwhelmingly likely” base rate rise tomorrow (May 5) will have an immediate impact on a mortgage market which is already showing signs of slowing.

Approvals for house purchases were “little changed”, falling to 70,700 in March from 71,000 the previous month, according to the Bank of England’s latest money and credit report.

Meanwhile, approvals for remortgaging - which only captures remortgaging with a different lender - rose slightly to 48,800 in March.

Nitesh Patel, a strategic economist at Yorkshire Building Society, said a “more accurate measure” of market conditions and activity was the volume of mortgage approvals.

“This figure reached 70,691 in March and, whilst marginally down on February, it is still well above the pre-pandemic average of 65,700,” said Patel.

The warnings of a slowing market came amid statements from prime minister Boris Johnson, who said this week an inflationary spiral would risk hitting people with higher mortgage payments, and chancellor Rishi Sunak, who suggested last week that some mortgage payments could rise by £1,000 a year.

Knight Frank Finance’s managing partner, Simon Gammon, said: “Demand on the purchase side remains strong but we are just beginning to see some subtle signs of slowing. Rising mortgage rates and uncertainty over the economic outlook is clearly taking a toll on sentiment and we expect mortgage approvals to fall in the months ahead before settling at longer term norms.”

Another hike in the base rate, which currently sits at 0.75 per cent, was "overwhelmingly likely”, said Gammon. Predictions point to a 0.25 basis point raise to 1 per cent.

“If the Bank of England indicates that it’s likely to take a more aggressive approach to combat inflation we’d expect to see an immediate impact in the mortgage market,” he explained.

“Lenders are already repricing products on a weekly basis so borrowers have got to move quickly if they want to secure a good rate – this isn’t something you can put off until tomorrow.” 

Affordability concerns ‘key challenge’

Some industry members have raised their concerns over affordability. Bluestone Mortgages’s chief executive, Steve Seal, said: “While it’s reassuring to see that mortgage lending to individuals has increased given current inflationary pressures, affordability concerns are, and will continue to be, a key challenge for consumers.”

He argued a growing number of customers were “feeling a squeeze” on the cost of living due to increased utility and fuel costs, as well as a hike to national insurance contributions.