The Bank of England’s Money and Credit statistics for December marked the second month running that gross mortgage lending showed a monthly increase.
Gross mortgage repayments also went up from £15.6bn to £19.1bn.
Net mortgage lending, which accounts for the rise and fall in outstanding balances, was flat for the first time since the series began in March 1994. The central bank said this was a new low for the measure.
People repaid £800m in mortgage debt on net, compared to zero in November.
Mortgage approvals up
Mortgage approvals for both purchase and remortgage rose for the third month in a row, as the settled rate environment restored confidence in borrowers.
There were 50,500 mortgages approved for house purchase in December, a rise from 49,300 the month before. Over the same period, remortgage approvals increased from 25,700 to 30,800.
Jonathan Samuels, CEO of Octane Capital, said: “Homebuyers are continuing to grow in confidence, buoyed by a reduction in mortgage rates in recent months. However, these mortgage rate reductions were based on previous expectations across the swap market that the Bank of England will reduce the base rate this week.”
Samuels said swap rates had started to rise on the likelihood that the base rate would be held at 5.25 per cent for the time being.
He added: “As a result, mortgage approvals have climbed, but not at the rate forecast, and we anticipate that should mortgage rates start to climb again in February it could further dampen the enthusiasm that has been shown by buyers in recent months.”
Guy Gittins, CEO of Foxtons, said the third monthly increase showed that the “market momentum continues to build and not even the usual lull of the Christmas period was enough to deter buyers from pushing forward with their plans to purchase”.
Lenders prepared for boost in activity
Tony Hall, head of business development at Saffron for Intermediaries, said the mortgage market was “always slow” in December but activity had ramped up since and he was “optimistic for the year ahead”.
He added: “The rates war started to slowly brew in the final weeks of last year and has boiled over in January, launching the mortgage market into the headlines. The competition on pricing has drawn a lot of previously hesitant or outpriced buyers back into the market.
“Lots of lenders relied on huge refinance activity last year and will be keen to continue tinkering with their product offerings in order to boost business on the purchase side of the market.”
Paul Glynn, CEO at Air, agreed, saying: “December is traditionally a slower period in the property market. We can anticipate a significant uptick in the January data next month after what has been a buoyant start to 2024 for the housing market.
“Come next month, we may see some notable differences, especially as the increased competition between lenders begins to open new windows of opportunity.”
Rates for new borrowers fall
The average interest rate on newly drawn mortgages came to 5.28 per cent in December which was a 0.6 per cent decline on the previous month. This was the first drop recorded since November 2021.
Meanwhile, there was a nine per cent rise in the average interest rate of outstanding mortgages at 3.36 per cent.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the improved interest rate outlook was feeding through to new buyers who were securing better deals compared to what was available last summer.
However, she said this would not ease the strain for refinancing borrowers.
Haine added: “The full effect of the BoE’s 14 rate rises in under two years is yet to filter through. The rate on the outstanding stock of mortgages saw a nine basis point increase in December to 3.36 per cent as more people switched onto more expensive deals, highlighting how many existing borrowers are still on low rates secured before the rapid rate hiking cycle began.”
Adam Oldfield, chief revenue officer at Phoebus Software, said: “Unfortunately, that massive jump in monthly payments will have been too much for some borrowers, which was borne out by the rise in mortgage defaults towards the end of last year.
“When a UK minister has to quit his job because he can’t afford his mortgage, you know the same problem must be being felt across the country.”
He added: “Then we hear that our Prime Minister is considering introducing a 99 per cent mortgage to help first-time buyers onto the property ladder. When we have such a huge problem with supply in the UK, you have to wonder whether this ‘vote winning’ tactic is really what is needed in the long term?”
