Low-cost deals contribute to boom in mortgage lending

Posted 10 February 2016 by Nick Parkhouse

Interest rates look unlikely to rise any time soon, so borrowers are continuing to make the most of a very competitive mortgage market...

An improved choice of low-cost deals helped propel the UK mortgage market to a strong December, according to the latest Bank of England data. New figures have revealed that borrowers looking to take advantage of cut-price deals drove lending to £18bn in the usually quiet month.

With the average interest rate on outstanding mortgages having fallen to a record low the prevalence of cheap deals is continuing to provide a boost to the mortgage market.

Mortgage lending stays strong as the cost of borrowing falls

New figures from the Bank of England have revealed that mortgage lending hardly slowed down at all in December, traditionally a quiet month for home loans. Banks and building societies lent £18bn in the final month of the year, up from £14.7bn in the same month in 2014.

Homebuyers borrowed a total of £12.3bn in the month (up from £10.1bn a year earlier) while £4.8bn was lend to remortgagers, up £1bn from a year earlier. Another £918m was lent to homeowners looking for additional borrowing from their current lender.

December also saw the average interest rate on an outstanding mortgage fall to a record low of 2.99%. It is the first time it has gone below 3% in the 16 years that the Bank of England has measured the rate.

“December [was] the busiest month for remortgaging in over two years, with activity growing more than twice as fast as overall approvals,” said Peter Williams from the Intermediary Mortgage Lenders Association.

“The continued appetite for remortgaging was likely to be a sign of homeowners eager to capitalise on market competition and lock into lower rates.”

Experts predict fixed rates could fall even further

With thousands of borrowers taking advantage of low interest rates, the mortgage market could continue to boom this spring as many experts anticipate that deals will become even cheaper.

The cost at which banks borrow money from each other - commonly known as 'swap rates' - has been falling and this often results in cheaper mortgage deals. In early February two-year swaps were at 0.78%, the lowest level since November 2013, while five-year swaps were 1.09%, the lowest since May 2013.

Experts are predicting that it may soon be possible to lock in to a five-year fixed-rate mortgage at less than 2%.

Mortgage expert Andrew Montlake said: "With governor Carney giving his latest assessment, the MPC saying that it looks there won’t be any rate rises for the foreseeable future and swap rates reacting accordingly, the cost of pricing has gone down.

“That will enable lenders to, if they want to, reduce some rates on their longer-term fixes. Given the fact that lenders are still in a competitive environment and very much want to get business in, it wouldn’t surprise me if we saw some rate reductions in the very near future.”

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