UK mortgage lending eases as pandemic-fuelled housing boom cools

Home loan approvals dip for third month in a row reflecting scaled back property tax break

A couple walks past houses overlooking Bristol harbour. Britain’s property market experienced a mini-boom during the Covid-19 pandemic. Getty Images

British mortgage approvals dipped for a third month in a row in August, as the housing market cooled following a pandemic-induced boom.

Mortgage providers sanctioned 74,453 home loans compared with 75,100 in July. The drop reflects the scaling back of the stamp duty holiday, which offered buyers a tax saving worth up to £15,000 (17,388) on property purchases until July 1.

However, lenders increased their lending by £5.3 billion in August, following a rare net repayment by borrowers in July of £1.8bn which reflected the tapering tax break.

“Approvals for house purchases, an indicator of future borrowing, ticked down in August to 74,500 from 75,100 in July. This is the lowest since July 2020, but remains above pre-February 2020 levels,” the Bank of England said.

Britain’s property market experienced a mini-boom during the Covid-19 pandemic as the stamp duty holiday introduced by Chancellor of the Exchequer Rishi Sunak in July last year propelled prices upwards.

Other factors driving up prices included demand for larger homes away from city centres as the work-from-home trend encouraged buyers to hunt for properties with more space and larger gardens.

Recent studies indicate the “race for space” is set to continue as working from home becomes the new normal for many. Low borrowing costs, a lack of homes for sale, savings accumulated during lockdowns and a robust jobs market are among the other factors underpinning the market.

Laura Suter, head of personal finance at AJ Bell, said the BoE figures indicate that some of the heat is coming out of the housing market following the pandemic-fuelled drive for space and the tax break put "rockets under the market".

“While August saw a small rebound in borrowing compared to July, the £5.3bn borrowed is 20 per cent lower than the average for the past 12-months,” she said.

However, rather than seeing the market "drop off a cliff", Ms Suter expects it to gradually slow down as the final end of the stamp duty holiday arrives and many of the people who wanted to move in the race for space will have done so, Ms Suter said.

Tax incentives are still playing their part in Britain’s housing market, as buyers rush to complete their purchases by Thursday to make a saving of up to £2,500 on the first £250,000 of their purchase price. Stamp-duty thresholds will then revert to their pre-pandemic levels on October 1.

Borrowing on credit cards, personal loans and car finance rose slightly but is still about a third of what it was in pre-pandemic times.

Laura Suter,
AJ Bell

Approvals for remortgaging (which only capture remortgaging with a different lender) rose to 39,700 in August, the highest level since March last year.

However, the BoE said this remains low compared with the months leading up to February 2020.

Meanwhile, consumer credit rose by £351 million in August, a limited increase reflecting poor retail sales during the month and reduced car sales, as carmakers struggled with shortages of semiconductor chips.

“Borrowing on credit cards, personal loans and car finance rose slightly but is still about a third of what it was in pre-pandemic times. Some of this will be driven by the lack of new car sales, leading to a drop in car finances, but it’s also because as a nation we’re borrowing less on credit since the pandemic reset many people’s finances," said Ms Suter.

The nation’s frugal lockdown saving ways also appear not to have been dented by easing Covid restrictions, with savings up £9.1bn in August – almost double the average inflow of £4.7bn in the year before the pandemic.

This adds to evidence that consumers are holding on to savings they accumulated during lockdowns instead of spending.

"However, savers were rewarded with yet another drop in savings rates to yet another historic low," Ms Suter said.

“With no signs of the Bank of England raising rates and inflation being high, and poised to shift even higher in the coming months, diligent savers are being clobbered from both sides."