Mort­gage ap­provals hit 13-year high

Lenders agree al­most 85,000 new home loans in Au­gust, but ap­petite for con­sumer credit wanes

The Daily Telegraph - Business - - Business - By Tim Wal­lace

COVID-19 and the mea­sures to com­bat its spread have twisted Bri­tain’s econ­omy dra­mat­i­cally this year, with data from the Bank of Eng­land yes­ter­day un­der­lin­ing just how much the na­tion’s spend­ing habits have changed.

Lock­downs made prop­erty pur­chas­ing next to im­pos­si­ble in the spring, while su­per­charg­ing de­mand for mov­ing. Some shops closed for months, stor­ing up de­mand as cus­tomers itched to get new prod­ucts. Oth­ers have strug­gled, as on­line sales have re­placed some phys­i­cal shop­ping.

The hous­ing mar­ket stopped dead for sev­eral months. Po­ten­tial buy­ers were blocked from view­ing homes, sur­vey­ors strug­gled to visit prop­er­ties for val­u­a­tions, and banks were ad­just­ing to staff work­ing from home en masse.

Add to that peo­ple who de­cided they wanted to move home af­ter months of work­ing from kitchen ta­bles, and all of the in­gre­di­ents were in place for a hous­ing mar­ket bo­nanza. Au­gust de­liv­ered that in spades.

Banks and build­ing so­ci­eties ap­proved al­most 85,000 loans for home pur­chase in the month, the high­est num­ber since late 2007. That amounts to £18.1bn of mort­gages – the high­est in a sin­gle month on record, as house prices are higher than they were back be­fore the fi­nan­cial cri­sis.

It is not yet enough to make up for sales lost to the pan­demic. Be­tween Jan­uary and Au­gust al­most 418,000 loans were ap­proved, com­pared with 524,000 in the same pe­riod of 2019. Those loans are get­ting cheaper, al­though banks have been cut­ting avail­abil­ity for those with a small de­posit.

At the start of the year a mort­gage with a five-year fix typ­i­cally came with an in­ter­est rate of 1.97pc. Now it is down to 1.79pc. Sim­i­larly a two-year fixed rate is down from 1.79pc to 1.68pc.

There was also po­ten­tial for pent-up de­mand for con­sumer credit, since fam­i­lies had been stuck in­doors un­able to spend for months. Gen­er­ally still in work, or at least paid via fur­lough, but with greatly re­duced ex­pen­di­ture, house­holds paid down about £17bn of credit card debt.

When shops, restau­rants and hol­i­days were back on the agenda, they bor­rowed more than £1bn on credit in July, in­clud­ing £600m on cards, get­ting back to more tra­di­tional spend­ing habits. Yet this was not the be­gin­ning of a wave of spend­ing, if Au­gust’s num­bers are any­thing to go by. Re­tail sales might be back above pre-Covid lev­els, but overall spend­ing on credit is not. Con­sumer credit fell back to a mere £300m in the month, in­clud­ing £243m on credit cards.

It sug­gests a de­gree of cau­tion on the part of fam­i­lies, who may be keen to keep their debts down at a time of eco­nomic un­cer­tainty. This is re­in­forced by house­holds’ con­tin­ued sav­ing. Fam­i­lies put an­other £5.2bn away in Au­gust – down on the record highs of the lock­down months, but still above the £4.6bn monthly av­er­age of 2019.

The ur­gent de­mand of full lock­down also sent bor­row­ing soar­ing. Small and medium-sized busi­nesses that typ­i­cally bor­rowed very lit­tle month to month ended up tak­ing loans to­talling al­most £18bn in May.

By Au­gust this was down to £2.2bn – still well above the net £1.5bn bor­rowed for the whole of last year.

Big­ger busi­nesses had their rush to bor­row from banks in March, re­paid some debts in the sub­se­quent months and re­turned to a more nor­mal rate of just over £2bn in Au­gust.

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