Mortgage lending plummets in April as estate agents cross fingers for rate cut
Mortgage lending dropped in April after the market ‘reset’ following the end of the stamp duty holiday, according to new figures.
Net borrowing of mortgage debt decreased sharply by £13.7bn to -£0.8bn in April, according to the Bank of England’s latest data.
Net mortgage approvals for house purchases also fell for the third consecutive month, to 60,500 in April from 63,600 in March.
Head of residential research at Savills, Lucian Cook, attributed the decline to the stronger-than-usual March driven by first-time buyers rushing to meet the stamp duty deadline.
But he cautioned that the slowdown also “reflects some ongoing caution among prospective buyers given the economic backdrop” which has caused the housing market to “lose a little momentum in recent months”.
House prices rose 3.5 per cent year on year in May, according to Nationwide, and rose by 0.5 per cent year on year.
A fall in mortgages ‘was always on the cards’
Estate agents were largely nonplussed by the sharp drop in mortgage borrowing.
“A month on month reduction in mortgage approvals was always on the cards in April, as the market paused for breath following a period of heightened activity driven by the rush to beat another stamp duty deadline,” CEO of specialist lender Octane Capital, Jonathan Samuels, said.
Research from Rightmove in March found a ‘log-jam’ of 575,000 movers hoping to complete deals ahead of the tax change, with around 13 per cent of those set to miss the deadline.
“We can expect to see mortgage approvals levels trend upward over the coming months as business resumes as normal,” Samuels said.
Tomer Aboody, director of specialist lender MT Finance, added: “Many buyers pushed transactions through in March in order to save themselves money.”
“With net borrowing dropping sharply in April once the stamp duty holiday had ended, this is further evidence of how the housing market reacts to stamp duty changes.”
Affordability starts to improve
With the market having undergone its post-stamp-duty reset, a clearer picture has emerged.
The signs are fairly positive, with indications that “affordability is easing a little”, according to Jason Tebb, president of OnTheMarket, said.
“Four rate reductions since August have helped, along with lenders easing criteria, but mortgage rates are still higher than many have grown used to in recent years,” Tebb added.
Strong wage growth and low unemployment is also underpinning the housing market.
“Further rate reductions from the Bank of England would provide more impetus for the market, particularly now that the stamp duty concession has ended,” Tebb said.
“Expected interest rate cuts and more flexible lending rules are likely to broaden the buyer base and boost spending power over the medium to long term,” Cook added.
However, inflation reached 3.5 per cent in April, adding fuel to an increasingly hawkish Bank of England.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said he “doesn’t expect much to change” going forward.
“Most seem to accept now that base rate is unlikely to fall as far and as fast as anticipated.”