Individuals repaid, on net, £0.8 billion of mortgage debt in December compared to net zero in November, according to the Bank of England’s Money and Credit data.
The annual growth rate for net mortgage lending was flat for the first time since the series began in March 1994. Gross lending continued to increase, from £16.4 billion in November to £17.2 billion in December. Gross repayments also increased, from £15.6 billion to £19.1 billion over the same period.
Net approvals (that is, approvals net of cancellations) for house purchases, which is an indicator of future borrowing, rose from 49,300 in November to 50,500 in December (Chart 1). Net approvals for remortgaging (which only capture remortgaging with a different lender) increased from 25,700 in November to 30,800 in December.
The “effective” interest rate – the actual interest paid – on newly drawn mortgages fell by 6 basis points, to 5.28% in December. The first drop since November 2021. The rate on the outstanding stock of mortgages increased by 9 basis points, from 3.27% in November to 3.36% in December.
What’s more, households deposited, on net, £5.4 billion with banks and building societies in December. Households, on aggregate, did not follow the recent trend of withdrawing from sight deposit accounts, and for the first time since May 2022, flows into sight deposits were higher than time deposits.
UK non-financial businesses (PNFCs and public corporations) borrowed, on net, £0.7 billion, following £1.4 billion of repayments in November.
The net flow of sterling money (known as M4ex) continued to be volatile month-on-month. M4ex increased by £19.9 billion in December, compared to a decrease of £2.9 billion in November. As seen in recent months, flows have largely been driven by movements in non-intermediate other financial corporations’ (NIOFCs’) holdings of money. These holdings increased by £15.6 billion in December, compared to a decrease of £6.9 billion in November. Households also contributed to the growth in M4ex, albeit to a lesser extent.
The flow of sterling net lending to private sector companies and households (M4Lex) amounted to £6.4 billion in December, down from £12.7 billion in November. This was mainly driven by a decrease in the flow of lending to NIOFCs. CEO of Octane Capital, Jonathan Samuels, commented:
“Homebuyers are continuing to grow in confidence, buoyed by a reduction in mortgage rates in recent months. However, these mortgage rate reductions were based on previous expectations across the swap market that the Bank of England will reduce the base rate this week.
These expectations have been changing in recent weeks and we’ve seen swap rates start to creep up based on the likelihood that the base rate will remain at 5.25% for the immediate future.
As a result, mortgage approvals have climbed, but not at the rate forecast, and we anticipate that should mortgage rates start to climb again in February it could further dampen the enthusiasm that has been shown by buyers in recent months.”
Adam Oldfield, chief revenue officer at Phoebus Software, said that it’s “good to start the year with some positive news”. He continued:
“The recent rate cuts, the latest now below 4% from the Nationwide, will be encouraging for those that were switched to standard variable rates (SVRs) last year. The waiting game may have paid off for some, but the increase from the historically low interest rates up to the current average SVR of over 8% will have put huge pressure on many households. Lenders will no doubt be inundated with borrowers looking to fix a new rate as quickly as possible.
Unfortunately, that massive jump in monthly payments will have been too much for some borrowers, which was borne out by the rise in mortgage defaults towards the end of last year. When a UK minister has to quit his job because he can’t afford his mortgage you know the same problem must be being felt across the country. Then we hear that our Prime Minister is considering introducing a 99% mortgage to help first-time buyers onto the property ladder. When we have such a huge problem with supply in the UK, you have to wonder whether this ‘vote winning’ tactic is really what is needed in the long-term?”
