UK mortgage lending rises ahead of possible rate rise

While mortgage lending was up year-on-year in February, it was below the monthly average for the past year

UK mortgage approvals rose year-on-year last month but were below the monthly average for 2017 (PA)

UK mortgage lending rose 4.9 per cent in February compared to the same month last year, indicating borrowers are eager to get on the property ladder ahead of a potential hike in interest rates in the coming months.

According to figures from financial services trade association UK Finance, while lending increased to £19bn last month, that is below the 2017 monthly average of £21.4bn.

Meanwhile, remortgage approvals rose 9 per cent in both number and value terms year-on-year in February.

“There has been an increase in remortgage approvals compared to last year, as borrowers look to lock in to attractive deals amid speculation of further interest rate rises later this year," said Eric Leenders, managing director, personal finance at UK Finance.

“We are also seeing a continuing rise in credit card spending, reflecting the growing number of transactions carried out using cards, while other forms of borrowing such as overdrafts continue to fall. Meanwhile real wages continue to be squeezed by inflation, impacting on consumer confidence and retail sales. This pressure on household incomes should ease in the coming months, as the effect of the fall in sterling begins to fade and the strong labour market leads to a better outlook for wage growth.”

Mortgage approvals by the main high street banks dropped to a level which was 7 per cent below last year’s average in February. Samuel Tombs at Pantheon Macroeconomics said that this confirms that “the Chancellor’s decision to reduce stamp duty for most first-time buyers in November has failed to reinvigorate the market”.

“House purchase demand, which has been weakening since mid-2017, is continuing to decline,” he added.

“New buyer enquiries fell for an 11th consecutive month in February, according to Royal Institute of Chartered Surveyors. Similarly, the National Association of Estate Agents reported that the average number of house hunters on estate agents’ books fell 27 per cent year-over-year in February.”

Mortgage rates likely will rise further over the coming months, Mr Tombs said, and with demand contracting faster than supply, he predicted house prices could flatline during 2018, hitting consumers’ confidence and limiting the Bank of England to just one 25 basis point increase in the base rate this year, as opposed to a possible two rate rises predicted by some economists last year.