Mortgage lending slows despite price war

Last week, we reported how a mortgage price war had broken out after a leading building society launched the cheapest ever deal in the UK.

Despite the cost of borrowing continuing to fall, the latest official data has revealed that mortgage lending has continued to slow this year. The number of mortgages approved in March was at a six month low, as households continue to feel the pinch after last year's Brexit vote.

Mortgage approvals fall for the second month running

The latest figures from the Bank of England have revealed that British lenders approved fewer mortgages in March than at any point during the last six months. The data shows that 66,837 mortgages for house purchases were approved in March, below the median forecast of 67,400 in a poll of economists and the lowest level since September 2016. Approvals for remortgages fell from 43,740 in February to 42,814 in March. The Bank reported that net mortgage lending rose by just over £3.1bn in March, also lower than forecast.

Jeremy Leaf, a former RICS residential chairman, says: “The Bank of England figures are slightly surprising as they are fairly similar to February’s data, when one would normally expect a seasonal pick up at this time of year. Yet we are not seeing the uplift we would have expected. However, they reflect what we are seeing on the ground – the market is behaving quite cautiously, partly to do with Brexit and the general election, with people being very nervous about taking on extra debt unless they are sure about the outcome.”

The fall comes despite some attractive mortgage products. Mortgage expert Mark Harris told the BBC: “With HSBC launching the cheapest five-year fix on the market at 1.69% and Yorkshire Building Society introducing a record low two-year discounted rate at 0.89%, the market is more competitive than ever. It is a good time for borrowers, with lenders keen to attract business from first-time buyers, home movers and those remortgaging. However, affordability criteria remains tight.”

Consumer borrowing also falling

The Bank of England data also revealed that consumer borrowing has also slowed down, with consumer credit in the year to March 2017 growing by 10.2%, the weakest increase since July 2016.

The BBC reports that this represents “another signal of how households are reining in their spending in the face of rising inflation after last year's referendum decision to leave the European Union.”

Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline, says: “While most people will cope with this borrowing for the moment, if the economy does worsen over the coming months there is a significant risk that many who have taken on this extra commitment could start to struggle.”