The Bank of England has reported a sharp increase in the demand for mortgages as the UK came out of its lockdown in July. Consumer borrowing in general has also increased, with a demand for credit in the form or overdrafts, unsecured loans and credit card spending.
The Bank of England has reported that the number of new home loan approvals jumped from 39,900 in June to 66,300 in July.
The stamp duty holiday is seen as a major contributor to the upturn in borrowing. There has also been pent-up demand during the UK lockdown. Since the lockdown restrictions were lifted, the Bank said mortgage approvals were running just 10% below their pre-crisis level.
The property market came standstill, with estate agents closing, and property viewings being placed on hold. There were only 9,300 mortgage approvals in May.
It was thought that getting a mortgage may have proven difficult once the UK lifted the lockdown restriction due to lenders reluctance to offer more credit and the reduced options borrowers had when applying for mortgages with small deposits.
One of Knight Frank Finance’s managing partners, Simon Gammon, told the Guardian, “It’s clear from the strength of the recovery that the cut to stamp duty is working as intended and we can expect a sustained period of robust and competitive sales activity.”
He also commented on the risk of pent up demand due to the stamp duty holiday, saying that “the future trajectory of the recovery will depend on how many people lose jobs at the end of the furlough scheme. Beyond that, the reduced stamp duty rates are due to end in March, and we’re likely to see a bottleneck of transactions build up in the run-up unless the government opts for an extension.”
This is true as the housing demand has also increased, with people applying for mortgages for houses in more rural and less expensive areas due to a new desire to continue working from home.
The Bank of England’s figures, reported in the Guardian, have also shown that there was a cumulative repayment of debt between March and June. These record repayments meant that the total of £15.9bn paid back resulted in the net borrowing in July being £1.2bn a month, which is similar to the £1.1bn a month in the 18 months leading up to lockdown.
The repayments as well as the lack of demand for consumer credit also resulted in the annual growth rate remaining negative at -3.6%. Credit card borrowing totalled £600m while other forms of borrowing was another £600m. There was an increase in credit demand in July as the restrictions eased.