Fear of rate rise drives mortgage borrowing to five-year high

Posted 30 September 2015 by Nick Parkhouse

Worries that the Bank of England is set to raise interest rates has contributed to the biggest growth in mortgage lending since the global financial crisis. New figures from the British Bankers' Association reveal that August saw the largest rise in mortgage lending in seven years, as borrowers scrambled to lock into cheap deals ahead of a base rate rise.

Experts believe that homeowners who are 'seizing the day' and taking advantage of cut-price rates are driving the home loan market.

The latest figures from the British Bankers' Association (BBA) have revealed that gross mortgage borrowing jumped to £12.2bn in August, a 14% increase from the same month last year and the biggest leap since 2008. Net mortgage borrowing reached £2bn, the highest monthly rise in five years.

The BBA also revealed that the number of mortgage approvals was almost a quarter higher (23%) than a year ago. Remortgaging rose by 38%, driven by the desire of homeowners to take advantage of record-breaking mortgage deals ahead of a possible base rate rise.

Date from financial analysts Moneyfacts shows that the average cost of a two-year fixed rate for remortgages has fallen from 3.45% to 2.57% in one year. This cut represents a saving of £1,320 a year for a £150,000 interest-only mortgage.

Experts also believe that a slight loosening of criteria has helped more people to be able to get the mortgage that they need. Royal Bank of Scotland re-entered the interest-only market earlier in September while Nationwide and Santander have announced they will reintroduce 95% mortgages.

Lloyd Cochrane, head of mortgages at RBS, says: “We are re-entering this market due to customer demand and we will keep in touch with our customers to support them to stay on track with repaying their mortgage.”

While the number of mortgages rose sharply in August there are signs that the very best deals are starting to disappear and that rates are starting to creep up.

The Financial Times reports that the lowest rate on a two-year fixed mortgage in May for borrowers with a 40% deposit was 1.09%, compared with the current best offer of 1.18%. Rates on five-year fixed deals have jumped from 1.99% in May to 2.29%.

Charlotte Nelson of Moneyfacts says many borrowers are “seizing the day” and “grabbing a low mortgage rate while they can”. She adds that speculation about a possible interest rate rise would have an impact on the cost of borrowing and advised the borrowers act sooner rather than later to secure the best deal.

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