Interest rate storm clouds begin to gather

The Bank of England lending statistics for September show that  net mortgage borrowing was £4.8 billion in September, up from £3.0 billion in August.

Mortgage approvals for house purchase increased further to 91,500, the highest since September 2007. Effective mortgage interest rates were broadly unchanged.

Net consumer credit borrowing weakened in September, with households making net repayments of £0.6 billion. The interest rate on interest-charging overdrafts increased by an additional 3.5 percentage points, to a new series high of 22.52% in September, while the rates on new consumer credit and credit card borrowing were little changed.

Private corporates borrowed £0.7 billion from capital markets in September. Small and medium sized non-financial businesses (SMEs) borrowed £1.6 billion, on net, from banks, while large businesses repaid £5.8 billion.
Overall, household and business deposits were strong in September, at £6.8 billion and £2.5 billion respectively. Deposit interest rates remain at historically low levels

With inflation pressures beginning to build, the prospect of higher interest rates becomes more likely. For a generation that has only known a world of extraordinarily cheap money the change will come as something of a shock.

Official forecasters predict that the biggest mortgage rate rises will come in 2023, the Office for Budget Responsibility (OBR) saying that inflation is likely to speed up to 4% next year.

In response, it expects a rise in the Bank rate next year, and the year after, from its current record low of 0.1%.

The OBR  says the Bank Rate could go as high as 3.5% if inflation goes over  5%.

Reactions to the figures recognised that whilst mortgage lending bounced up as the SDLT holiday came to an end, the prospect of higher interest rates is about to become a significant factor in the property market. And mortgage payment affordability in the face of the rising cost-of-living figures is also likely to become a more significant factor in lending criteria.

Karthik Srivats, co-founder of mortgage lender Ahauz:

“While all the talk in September was about the squeeze on incomes and faltering economic growth, on the mortgage frontline things accelerated back to a gallop.

“Mortgage borrowing more than doubled from its August level to £9.5bn, the highest monthly level since the record-smashing figures seen in June.

“It’s likely that the jump in activity was powered in part by a late surge of buyers desperate to complete their purchases before the end of England’s stamp duty holiday.

“Even though total new borrowing remains below the all-time high seen in summer, the market’s momentum continues to push up average house prices and pile extra pressure on first-time buyers trying to make the sums work.

“That said, interest rates remain highly competitive and we expect approvals to remain well ahead of pre-pandemic levels for some time to come. With the supply of homes for sale not even close to keeping up with buyer demand, it’s unlikely the market will cool significantly in the months ahead.

“With the Governor of the Bank of England dropping increasingly heavy hints that an interest rate rise is coming, this remains a challenging environment for first-time buyers.”

Anthony Codling, Twindig:

“Mortgage approvals in September 2021 were 2% lower than the previous month and 22% lower than one year ago as mortgage activity starts to return to normal levels following the housing market closure and subsequent stamp duty holiday.

“If we compare mortgage approvals since the start of the COVID-19 pandemic to their 10 year average level, we have seen a net gain of 175,000 mortgage approvals, a sure sign that the Stamp Duty Holiday stimulated housing market activity.”

Richard Pike, Phoebus Software sales and marketing director:

“In a week when the Chancellor chose to almost sideline housing in his budget speech it is encouraging to see that mortgage approval numbers in September were still above the pre-pandemic level. Not that £24bn is an insignificant amount, it just didn’t warrant much emphasis in the greater scheme of things. However, for those of us in the industry we have to take the positives while we can get them and, for now, our housing market continues to defy predictions that it would fall off a cliff after the SDLT holiday.

“It is interesting to see that consumer borrowing increased whilst savings, which had increased during the pandemic, fell slightly. As people return to ‘normal’ practices the difference between what people spend and what they save is likely to increase. Not surprising when you consider how long we were without those liberties.

“Rising prices, especially on energy and fuel, will surely make that gap even wider over the coming months. Then lenders will have to take a long hard look at affordability calculators and the risk that rising household bills has on overall affordability.”

Steve Seal, CEO, Bluestone Mortgages:

“It’s been reassuring to see confidence in the housing market again after many months of uncertainty. However, with the likes of the Stamp Duty holiday and furlough scheme having recently ended, and [the] Budget quite light touch on housing, we may see more borrowers plunge into difficult financial situations and, who as a result, will likely be turned away by the mainstream mortgage market.

Conor Murphy, CEO, Smartr365:

“Though buyers are no longer motivated by the tax savings on offer in the stamp duty holiday, we can expect both mortgage approvals and net mortgage borrowing to remain strong throughout Q4 and 2022, given the enduring ‘race for space’ and undersupply of UK housing.

“However, with various factors putting pressure on an interest rate increase and the Stamp Duty holiday long-gone, it is now time to plan the next era of the market.

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One Comment

  1. Andrew Stanton Proptech Real Estate Influencer

    Will interest rates rise on 4th November? The nine wise heads at the Bank of England meet this Thursday to discuss either holding the base rate as is, or increasing it to stave off inflation. Recent commentary from the panel that includes Andrew Bailey, the Governor, is that three will oppose any uptick, three are sitting on the fence, and three are looking for an increase.
    The fallout from any increase will be felt immediately in the property sector if it comes, as lending will immediately become more expensive. It may be marginal, but this industry is hypersensitive to market sentiment. If the cost of moving changes, many may well tighten their belts and hunker down, especially with utilities and perhaps food and other costs on the rise.
    If interest rates do not rise now, many in the city feel it may only be a matter of time, an indicator will be if lenders start to retract their extremely enticing headline lending rates, soon be bonfire night and we will all know.

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