Mortgage approvals hit their highest level in 13 years last month, as a temporary cut to stamp duty and pent up demand from lockdown led to a surge in house sales.
The Bank of England on Tuesday said the number of mortgage approvals increased “sharply” to 84,700 in August. The spike represents the highest level of approvals since October 2007, on the eve of the financial crisis. The surge in borrowing was well ahead of forecasts from City of London economists of a 71,000 rise.
UK consumers borrowed £3.1bn ($4bn) secured against homes last month, up from £2.9bn in July.
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Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the spike was driven by “the release of pent-up demand following the shutdown of the housing market in Q2 and the impetus to complete purchases while the threshold for stamp duty has been raised temporarily to £500,000, from £125,000.”
The government cut stamp duty in July and the discount is due to run until March next year. Rock bottom interest rates have also made it cheaper to borrow. The Bank of England said the average interest rate on new mortgages was just 1.72% last month.
The Treasury said last week that house sales surged over 15% in August in response to the changes in the mortgage market.
However, experts believe the COVID-19 property boom will prove short-lived. House prices are forecast to fall in many parts of the UK next year as activity slows.
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Tombs said looming job losses would cool the market, as well as rising mortgage rates for first time buyers which could lock many out of the market.
Recent Google Trends data shows traffic to Britain’s biggest property websites has also begun to tail off, Tombs said.
The Bank of England’s figures showed that consumers cut back on non-mortgage borrowing last month. Brits borrowed net £300m in August, down from £1.1bn in July.