The Bank of England has reported that mortgage lending and credit card borrowing fell in February, as the cost of living crisis continues to squeeze households’ finances.
The Bank said that net mortgage lending to individuals decreased by £0.7bn in February, compared to £2.0bn in January. This is the lowest level of net borrowing since April 2016 (also £0.7bn).
The Bank also said that net mortgage approvals for house purchases increased to 43,500 in February, from 39,600 in January. This marked the first monthly increase since August 2022.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 0.36%, to 4.24% in February.
Consumers borrowed an additional £1.4bn in consumer credit in February, on net, compared with £1.7bn borrowed during January. This was split between £0.6bn of borrowing on credit cards and £0.8bn of borrowing through other forms of consumer credit.
Households deposited an additional £1.6bn with banks and building societies in February. Within this, net flow into time deposits remained strong at £6.8bn, but this was largely offset by net withdrawals from sight deposits.
Non-financial companies (PNFCs) repaid £1.9bn in market finance, while non-financial businesses (PNFCs and public corporations) repaid £4.5bn of bank loans in February.
The net flow of sterling money (known as M4ex) witnessed a significant fall to -£6.9bn in February, from £38.6bn in January. This was primarily driven by non-intermediate other financial corporations (NIOFCs), with net flows decreasing to -£6.6bn (from £33.0bn in January). Net lending to the private sector (known as M4Lex) also decreased, to -£21.5bn from -£7.3bn over the same period.
The Bank of England’s data suggests that households are increasingly struggling to afford to borrow, as the cost-of-living crisis continues to squeeze their finances. This could lead to a further slowdown in economic growth in the coming months.
Reaction
Lisa Martin, Development Director at TMA Club:
“As expected, today’s figures reflect a cooling in the number of completions. This comes as a result of the uncertainty generated by last year’s mini-budget announcement leading to fewer mortgage applications being made throughout Q4 2022 as buyers held off in the hope of more favourable market conditions.
“However, although the Bank of England recently raised interest rates for the 11th consecutive time, swap rates remain favourable and lenders have been repricing their products downwards. This has prompted an increase in market activity, particularly in product transfers as borrowers and remortgagers take advantage of decreasing mortgage rates. More recently, we’ve seen an increase in the number of mortgage applications, almost back to pre-September levels of activity, which will likely feed through into higher approvals throughout the latter half of the year.
“In addition, large numbers of fixed rate mortgages are expected to mature this year, and so brokers should be ready for a greater volume of remortgaging or product transfer activity. With this busy pipeline in mind, brokers should ensure they reach out to their existing clients and look to stay abreast of any changes to products and rates in order to source the most affordable and relevant deals for these clients.”
Reece Beddall, sales and marketing director, Bluestone Mortgages:
“Today’s uptick in mortgage approvals highlights more confidence in the mortgage market than in recent months. However, with speculation that the Bank of England is looking to increase rates further to curb inflation, we can only expect to see a growing number of customers facing financial struggles over the months to come.
“Whether customers are experiencing difficulty keeping up with mortgage repayments, or concerned about how to take their first or next steps onto the property ladder, early engagement with a lender or broker is vital. It is the responsibility of the industry to ensure that customers feel supported during times of uncertainty, and are provided with the necessary guidance and advice to take their homeownership journey forward.”
CEO of Octane Capital, Jonathan Samuels:
“We had previously seen well in excess of 60,000 mortgages approved on a monthly basis throughout the pandemic market boom period. However, this level of monthly buyer activity has been in sharp decline ever since a shambolic September mini budget that thrust the market into uncertainty.
Today’s increase, albeit a marginal one, suggests that the green shoots of buyer demand are once again starting to grow and we expect these green shoots to blossom over the coming months, as we enter what is traditionally the busiest time of year for the UK property market.”
Founder and CEO of easyMoney, Jason Ferrando:
“Today’s uplift in mortgage approvals shows that the spring surge in market activity is underway and while the volume of mortgages being approved is unlikely to return to the highs of last year, an increase in buyer activity bodes very well for the wider health of the property market.
Of course, an eleventh consecutive interest rate hike may yet dampen the enthusiasm of the nation’s buyers, who have already had to contend with the far higher cost of borrowing when entering the market.”
Karen Noye, mortgage expert at Quilter:
“The UK’s housing market looks still on unsteady footing in February, after the Bank of England revealed a notable drop in net mortgage lending to individuals, declining from £2.0bn to £0.7bn. This marks the lowest level of net borrowing since April 2016, when it also stood at £0.7bn. However, this should come as no surprise considering mortgage approvals took a huge tumble in January.
“But some green shoots might be appearing as in February approvals for house purchases showed a rebound, rising to 43,500 in February from 39,600 in January. This marked the first monthly increase since August 2022. However, the effective interest rate on newly drawn mortgages increased by 0.36% to 4.24% in February, making borrowing more expensive for potential homeowners and will likely still continue to mean approvals are depressed as people adopt a wait and see approach at least in the short term. However, it’s clear that home buyers are cautiously returning back to the market in early 2023 after the huge shocks at the back end of last year made many put their house hunts on ice.
“How this all feeds through to house prices is yet to be seen. At present we have seen a few minor drops in prices but they have remailed relatively resilient as of yet. How prices progress towards the end of the year will depend on how volatile the economy is, the speed at which inflation comes down and how much further the Bank of England go with interest rate increases.
“Consumer credit also positively witnessed a decrease in February, with consumers borrowing £1.4bn on net, compared to £1.7bn in January. The borrowing was split between £0.6bn on credit cards and £0.8bn through other forms of consumer credit. Any decrease in credit considering the eye watering interest rates many will be suffering is good news but anyone borrowing for day to day needs in this environment may find that they quickly spiral into debt.”
Managing director of Sirius Property Finance, Nicholas Christofi:
“The first increase in mortgage approvals since August of last year suggests that the frosty market conditions of recent months are now starting to thaw as buyers return to the fold.
“However, it’s clear that higher interest rates are taking their toll with mortgage lending continuing to decline and substantially at that.
“This demonstrates that although there remains an appetite for homeownership, buyers are treading with greater caution and borrowing less, as they adjust to the changing landscape of the market.”
CEO of Alliance Fund, Iain Crawford:
“Having weathered the period of market uncertainty seen since the closing stages of last year, the nation’s homebuyers are now emerging from their winter boltholes with intent to transact.
“It may take some time before this returning buyer activity helps to stabilise house prices, but it would appear as though we have now seen the back of what many previously predicted to be a property market downturn.
Les Pick, director of manufacturing and adviser propositions at more2life:
“Despite the foreseeable dip in overall activity last month, gross lending still remains higher than pre-pandemic levels, demonstrating the buoyancy of the UK property market.
“Borrowers welcomed the Chancellor’s announcement earlier this month that the UK will not be entering a technical recession, but the surprise 10.4% increase in inflation in February did catch many people, including economic experts, off guard. Despite this rise, inflation is expected to fall to 2.9% by the end of 2023 suggesting pressure will gradually ease throughout the year.
“It is true that things are beginning to move in the right direction, not least in the later life lending market where product choice is going up while rates are coming down. With the cost-of-living crisis continuing to be felt by all generations whether people are looking to boost their income or support their families home buying ambitions, there are options to consider.
“With more opportunities opening up, including the return of our Maximum Choice product range, it is important that borrowers are aware of all of the options available to them. This all starts with a conversation with an adviser, who can provide direction and put individuals on the right path based on their personal needs.”
Paul McGerrigan, CEO at national fintech brokerage Loan.co.uk:
“This is positive news in the fact mortgage approvals have increased for the first time since August 2022, as buyers begin a cautious return to the market.
“We are a long way of the peak of 74,300 in August 2022 but have we turned the corner? At 43,500 approvals in February v 39,600 the signs are encouraging against significant headwinds.
“The picture is unlikely to change drastically over the coming months, however with inflation stubbornly high. The question is, can the market take the recent base rate rise to 4.25% and continue to recover?
“Economic indicators point to a more positive outlook in the second half of 2023, once inflation and interest rates are more stable, buyers will gain confidence and return to the market in greater numbers.”
Colum Lyons, CEO at ID-Pal comments on the Money & Credit statistics:
“As the cost-of-living crisis continues, it is unsurprising to see this drop today. Ongoing uncertainty and higher interest rates are pushing people to postpone bigger purchases leading to a decrease in borrowing.
“There is still high demand for financial products and increased movement between providers to get the best rate. When financial institutions and brokers are competing to attract both consumer and business customers and as we’ve seen in the past, fraud thrives in times of volatility and overnight market changes.
“Considering the proposed new failure to prevent fraud offence, it’s critical banks, brokers and payment providers maintain robust processes around compliance to strengthen weak processes across all channels and fix loopholes fraudsters can exploit.
“Digital solutions are essential to remain competitive and compliant, helping lenders to deliver at the speed expected by consumers and businesses today, while also being able to seamlessly verify identities and eliminate the risk of fraud.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“Net borrowing was £5.9bn last September and has decreased every month for the past six months down to £0.7bn in February. This is reflective of the uncertain economic climate, inflationary pressures and rise in mortgage rates with people waiting to see a clearer picture.”
“On the positive side mortgage approvals are up, which is a good sign for future mortgage lending so I would expect to see lending figures increase in the coming months.”
