Credit statistics belie tough mortgage outlook

Net mortgage borrowing rose to £4.8bn in February, from £4.2bn in January, above the £4.5bn previous six-month average.

Annual growth for net mortgage lending also rose, to 3.4%, from 3.3% in January; house purchase approvals rose slightly to 62,600, from 60,200; and remortgaging approvals came in at 41,200, up from 38,500.

Given that March saw a rapid reversal of any real progress made in terms of mortgage rates and buyer confidence, we can expect this positive shift to be very short-lived. Prospective homebuyers and movers who were holding out for lower interest rates will have had their hopes dashed since the start of the Iran conflict. The Bank of England had been expected to make at least one or two cuts this year, but now a hold or even an uptick seem more likely.

Lenders had been offering slightly more competitive rates before the start of the war, and this is reflected in the latest figures, which show the effective rate on newly drawn mortgages was 4.10% in February, in line with the 4.09% seen in January. But this will have changed considerably in the month since.

Meanwhile, as we near the end of the tax year, households have piled money into savings – ISAs in particular. Households added £5.8bn to bank and building society deposits in February, up from £4.3bn in January, with an additional £4.6bn put into ISAs.

While some households have been able to top up savings, others have turned to borrowing; net consumer credit borrowing rose to £1.9bn in February, from £1.8bn in January, including £0.8bn in credit card debt, for which the annual growth rate stands at 12.1%. This expensive debt has been a crutch for some households and if the cost of living rises as expected, given rising energy and food costs, there is a risk more people will turn to it to help make ends meet.

Karen Noye, financial planning consultant at Quilter