Stamp duty holiday pushes mortgage borrowing to a record high

The stamp duty holiday pushed mortgage lending to an all-time high. But now the holiday has come to an end, can we expect more of the same?

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The Bank of England’s Money and Credit report revealed that net mortgage borrowing reached a record high of £17.9 billion in June. The previous record was £11.5 billion in March 2021. It’s no coincidence that both peaks came when the stamp duty holiday was due to come to an end.

So let’s break down what this means for mortgage lending at the moment and what we can expect from home finance for the rest of the year.


Record mortgage borrowing

As Paul Stockwell from Gatehouse Bank put it, “This record borrowing has totally eclipsed the previous high set only three months earlier.”

If you have been following the news, you will probably be aware of the effect the stamp duty holiday has had on the housing market. And now, the stats are showing us exactly what that looks like.

Net mortgage borrowing reached an all-time high of £17.9 billion in June. Meanwhile, borrowing has averaged £5.4 billion in the 12 months to May 2021. There is also evidence to suggest that the time between a mortgage being approved and the lending itself has also shortened.

It’s safe to say that the rush to get house purchases completed before the end of the stamp duty holiday is what drove these figures, combined with pent-up demand from the pandemic and a race for more space.

But now that the stamp duty holiday has begun to taper, can we expect more of the same?

Looking ahead

The interesting statistic in the BoE’s Money and Credit report was that approvals for house purchases actually decreased in June – dropping from 86,900 in May to 81,300. This gives us an indication of future borrowing.

It shows that the housing market is starting to cool down following the frenzy we have seen coming up to each stamp duty holiday deadline. In fact, approvals for house purchases are at their lowest level since July 2020.

But that doesn’t mean to say things will grind to a halt.

In fact, there has been an increase in the number of new buyers on the market. Knight Frank reported that the number of new prospective buyers registering between 1 July and 7 July was 31% above the five-year average for the same period.

Plus, slowly but surely, more properties are coming onto the market. Estate agents Winkworth reported that property valuations were up 12% compared to 2019, and new instructions were up 15%.

Lenders are also beginning to offer ultra-low interest deals and increasing numbers of 95% LTV mortgages.

All in all, the housing market looks like it will remain firm in the coming months. While some of the heat may have been taken out of it due to the end of the stamp duty holiday, we can expect solid demand for the time being.


Buying a home

The good news for prospective buyers is that mortgage lending is up. Compared to when the coronavirus pandemic first started, lenders are more willing to lend now. And there are increasingly competitive deals available.

In fact, there are now 10 remortgage two-year fixed-rate deals available at a sub-1% rate. However, these are mainly for borrowers who have a large deposit.

The number of 95% LTV is also up by an astonishing 1,262% since January, largely because of the government’s mortgage guarantee scheme.

So the good news is that there is an increasing number of options available when it comes to mortgages. However, high house prices are making it tricky for some to save a large enough deposit.

One product that could help is a Lifetime ISA. This is a savings account available to those aged 18 to 39. You can save up to £4,000 each year, and the government will add a 25% bonus to your savings – up to a maximum of £1,000 a year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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