Mortgage lending booms as Brexit fears “wide of the mark”

Posted 30 September 2016 by Nick Parkhouse

A nine-year high on August mortgage lending contradicted widespread fears for a post-Brexit slump in the home loan market...

Fears that the mortgage market was set for a post-Brexit slump have proved to be “wide of the mark” with lenders reporting the strongest August in nine years. Lending was stronger than expected with rock-bottom rates driving the market.

The Council of Mortgage Lenders (CML) has reported that mortgage lending bounced back in August, with £22.5bn of loans handed out - a 7% increase on July's total of £21.1bn. August's lending represented a 15% year-on-year rise, from £19.5bn in August 2015.

The CML says: "This is the highest August figure since 2007 when gross lending reached £33.6 billion."

August was the highest lending amount since March, when the market was inflated by buy-to-let investors rushing to complete in order to beat an increase in stamp duty on investment properties.

CML senior economist Mohammad Jamei says: "Widely voiced fears in recent months about the housing market have proved to be wide of the mark. Prospects for house purchase activity post-referendum look slightly subdued, when compared to late 2015 and early 2016. However, sentiment in the market recovered in August. This is reflected in stronger-than-expected transaction figures, and in our gross lending estimate."

The strong lending figures are the latest in a stream of positive economic data that has emerged since the EU referendum. The Office for National Statistics concluded last week that there was no evidence the referendum had caused a severe shock to the economy despite months of warnings from experts ahead of the poll on 23 June. 

Base rate cut making mortgages cheaper

Experts believe that the recovery in the mortgage market is down to a number of factors. The decision by the Bank of England to reduce the base rate to 0.25% is one such factor and the cut has made mortgage costs cheaper for many homeowners.

Jamei adds: "A subsequent uptick in [mortgage] approvals is anticipated, albeit still at levels lower than earlier this year as affordability constraints and lack of properties on the market for sale continue to bear down on borrowers. The Bank also continues to indicate another rate cut on the cards, if medium-term prospects remain unchanged.”

Cuts in mortgage rates have also driven lending. Many brokers have reported an increase in remortgage business as borrowers look to look into low cost deals while potential buyers are being tempted to market - assuming that they can find a property to buy.

The Royal Institution of Chartered Surveyors (RICS) said there was still a shortage of stock for sale even though confidence in the market has begun to rise after the shock of the Brexit decision.


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