3rd February 2016
Mortgage lending increased through to the end of 2015, barely slowing down even in the traditionally quieter month of December. Banks and building societies lent £18bn in mortgages in the final month of the year, down from £18.7bn in November but still up sharply on the £14.7bn loaned out in December 2014. Both mortgages for house buyers and remortgaging deals for existing home owners registered an increase.
Buyers borrowed £12.3bn – up from £10.1bn in the same month of 2014 – while remortgagers rolled over £4.8bn of loans, up from £3.8bn a year earlier. Another £918m was loaned to homeowners who increased the size of their loan with the same lender, for instance to fund home improvements or to buy a car. That is up from £738m a year earlier. The average interest rate on an outstanding mortgage fell to 2.99pc, the first time it has gone below 3pc in the past 16 years since it was first measured. Meanwhile a rise in mortgage repayments meant total debts fell by £5bn to £1.28 trillion.
But it is estimated rates would stay at 0.5pc for longer as turmoil in the financial markets and falling growth in China present risks to the UK economy. While interest rates have stayed low to promote lending and encourage growth, risky lending will also cut down. Recent rule changes include limiting lending to borrowers who want loans worth more than 4.5 times their income, and government measures to increase taxes on buy-to-let borrowers.
In addition, the Mortgage Market Review rules, introduced in April 2014, force banks to test borrowers’ ability to afford higher interest rates.
As a result the number of mortgages approved by banks fell in the months around the rule change. However they are now almost back up to the pre-MMR level. A total of 70,837 loans for purchases were approved in December 2015, above the level seen in February 2014 and almost back up to the 76,275 high in January 2014. As house prices have continued to rise, the value of those loans is already well above the level in 2014. Mortgage brokers said remortgagers were particularly keen to get new deals on their loans to take advantage of low interest rates. December was the busiest month for remortgaging in over two years, with activity growing more than twice as fast as overall approvals. The continued appetite for remortgaging was likely to be a sign of homeowners eager to capitalise on market competition and lock into lower rates.