Optimism boosts mortgage borrowing and cuts debt repayments

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on Bank of England’s publication of its March credit report and effective March interest rates, which show optimism boosting mortgage borrowing and cuts debt repayments.

Key points from reports:

Net mortgage borrowing was £11.8 billion in March: the strongest since the series began in 1993. This is higher than the pre-financial-crisis peak in 2006.
The number of mortgages approved for home purchases was 82,700 – down from the peak in November of 13,100, but up from February.
We repaid another £0.5 billion of debt in March, but this was the lowest debt repayment since October last year.
Borrowing was down 8.6% in a year, and credit card borrowing was down 18.5%. Consumer credit stood at £196.7 billion (£54.2 billion of which was on credit cards).
We put £16.2 billion into savings in March. We also saw £0.4 billion withdrawn from NS&I, so overall deposits rose £15.7 billion. This was similar to the average seen since last July.
The average easy access account paid 0.11% – slightly down from the previous month and a new low for the series.
New fixed rate accounts paid an average of 0.49%, which is up slightly from February’s 0.34%, and the highest since November 2020.

Sarah Coles, personal finance analyst, Hargreaves Lansdown, commented:

“You can feel the optimism bubbling over in the new saving and borrowing figures, as the vaccine rollout continued apace and the country prepared to reopen for business. Mortgage borrowing set new records in March, and while saving levels remained high, debt repayments started to tail off, as we dusted off our credit cards ready for a summer of spending.

“The boom in mortgages is partly explained by buyers rushing for the old stamp duty deadline. In the end, the deadline was shifted to June, but buyers were already committed and keen to get the whole thing over and done with as soon as possible. We know from subsequent months’ data that renewed optimism among buyers means the boom in house-hunting has continued. And because it hasn’t been accompanied by the same enthusiasm for house-selling, prices are on the march again.

“Debt repayments have slowed, as we revamped everything from our wardrobes to our gardens in preparation for being able to socialise outside. We saw something similar in June last year, which was followed by a return to borrowing with enthusiasm over the summer. We can expect credit card spending to ramp up again over the next few months.

“However, we remain committed to saving, putting away another £15.7 billion during the month. The strength of saving was something we hung onto during the summer last year too. It fell from lockdown levels, but remained above pre-pandemic saving. There’s hope that even in more optimistic times we’ll maintain our savings, and that the one in four people who told us they still don’t have any emergency savings, have an opportunity to put away some cash for the future.

“Of course, not spending the cash is only the first step. We should be putting our emergency savings into a competitive easy access savings account. You can currently get 0.45% from an account with no restrictions, and while it’s not a rate anyone is going to get very excited about, it’s much better than letting your cash languish in a high street easy access account paying 0.01%, or a current account paying nothing at all.”

Kindly shared by Hargreaves Lansdown

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