Confidence abounds: more mortgages, spending savings and borrowing boost: Bank of England

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the latest Bank of England figures, showing confidence abounds: more mortgages, spending savings and borrowing boost.

Key points from publications:

• • The Bank of England reported on effective interest rates for March.
  • It also issued its money and credit report for March.
  • We withdrew £1.3 billion of cash in March (subtracting deposits from withdrawals). Withdrawals from easy access accounts accelerated massively, but fixed rate savings grew and NS&I had a strong month.
  • We borrowed another £1.6 billion in consumer credit – including 0.9 billion on things like car finance and personal loans.
  • There was a significant bump in mortgage approvals for house purchases – up from 44,100 in February to 52,000 in March. It’s the second consecutive  monthly rise.

Sarah Coles says:

“We’re spending our savings and racking up borrowing, but this may not be the harbinger of doom it initially seems.

“The way we’re borrowing, and the fact we’re also flocking to the mortgage market, means there’s every chance we’re splashing the cash because we think we can see light at the end of the tunnel.”

Mortgage approvals rise:

“Mortgage approvals have risen for the second consecutive month.

“We shouldn’t read too much into this, because it’s still well below the monthly average approvals for 2022 (62,700), but it’s adding fuel to the fires of optimism being lit across the property market.

“It comes on the back of figures from Nationwide, which said house prices were up 0.5% in April – after falling for seven consecutive months.

“Zoopla was even more enthusiastic, claiming that the worst may be over for the market – with demand hitting a 2023 high at easter, supply booming, and demand back above the five-year average.

“The growth in mortgage approvals is due in no small part to falling mortgage rates – which have been creeping south since the peak in October last year.

“They’re still significantly higher than before the rate rises kicked off, and the falls took a break in March after the surprise inflation bump, so the effective interest rate on new mortgages was up 17 basis points to 4.41% in the month.

“However, they’ve started falling again, and we expect them to continue to drop through 2023.

“There has also been a small rally in sentiment.

“The GfK confidence index shows that people’s confidence in their own finances has picked up slightly over the past three months.

“There are still headwinds, with inflation still horribly high and worryingly sticky – alongside growing concerns about a global slowdown and possible stagnation.

“However, there are plenty of people who are hoping the UK can avoid a recession this year, and that jobs could prove reasonably resilient – protecting those with mortgages to pay.

“There’s also the optimism that falling inflation later this year could help ease the pressure.

“None of those things are guaranteed to happen, but for the property market right now, it’s enough that people believe they might.”

Spending our savings and borrowing more may be a sign of confidence:

“When you subtract withdrawals from new saving (in banks, building societies and NS&I) we withdrew £1.3 billion in March.

“Withdrawals from easy access accounts accelerated massively, and excluding NS&I, the cash taken out of easy access accounts paying interest ramped up from  £5.1 billion in February to £14.4 billion in March.

“Money also flowed out of easy access accounts not paying interest -including current accounts – for the fifth month in a row – with the loss of another £2 billion.

“Some of this will be people plundering their savings because they’ve run into a brick wall financially.

“However, others will have more positive reasons for withdrawals. Some will be switching into fixed rate savings: £6.5 billion of cash continued to flow into fixed rate accounts in March.

“Some will be moving into NS&I and taking advantage of the multiple rate rises that make these accounts look far more attractive right now. It attracted an extra £3.5 billion in March – its best month since September 2020.

“Others will be withdrawing to spend, because they have more confidence that the squeeze will come to an end soon.

“Borrowing figures give us an indication of how widespread this is likely to be. We borrowed another £1.6 billion in consumer credit, and £0.9 billion of it was borrowing like car finance and personal loans.

“Some of this will be consolidation, but an awful lot of it will be people deciding that now is the time to take the plunge on a major expense.

“The question may now be whether people have jumped too soon. While we’re expecting inflation to fall over the coming months, there are no guarantees that it will do so quickly, and in many cases this won’t mean things getting cheaper: they’ll just get more expensive more slowly.

“If people are stretching their finances with a property purchase, a new car, or spending their savings on a holiday, there’s the risk they will come to regret it if the squeeze doesn’t ease as fast as they expected.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay