Mortgage lending on the up in August

Mortgage lending on the up in August

The demand for homes in the UK continues to defy expectations.

Figures from the Council of Mortgage Lenders (CML) show that gross mortgage lending hit its highest August level since before the financial crash. 

According to CML, its members advanced £22.5 billion during August 2016, up 15 per cent year on year.  In July, mortgage lending totalled £21.1 billion, meaning that there was a month on month rise of seven per cent.  Significantly, figures for August were the highest for that month since 2007 – the year before the global financial crisis.

This supports the recent reports from the Royal Institute of Chartered Surveyors that the housing market saw a significant rebound in confidence and activity in August.

The impact of interest rates cuts

The CML acknowledged that there were several factors contributing to this increase, including the Bank of England’s recent decision to cut interest rates to a historic low of 0.25 per cent.

CML senior economist Mohammad Jamei explained: “This recovery in sentiment is likely to be down to a number of different factors, including the Bank of England’s monetary stimulus and its introduction of the Term Funding Scheme in August.”

However, we are seeing mortgage rates continue to tumble in the wake of the interest rate cut, with HSBC recently announcing a record-breaking 0.99 per cent two year fixed rate loan, which is the first fixed-rate mortgage below one per cent.

In fact, according to Moneyfacts, the average two-year mortgage rate has hit a record low of 2.44 per cent, while the average five-year fixed rate has fallen by 0.03 per cent to another record of 3.05 per cent.

And it’s not just fixed rates that are falling - the average two-year tracker mortgage rate has also reduced by 0.19 per cent in the last month, standing at 1.94 per cent in August: the lowest ever recorded.

What’s on the horizon?

There is still a great deal of speculation about what will happen next for interest rates and mortgages.  With forecasters now predicting the economy will grow – albeit slowly – in 2017, there is more of a mood of cautious optimism.

The Bank of England may still opt to reduce interest rates further, possibly to as low as 0.1 per cent, that would see even fiercer competition among mortgage lenders, which can only be good news for househunters.

With conditions better than expected following the Brexit vote, all eyes will be on the chancellor, Philip Hammond, when he delivers his Autumn Statement on November 23.

Use our mortgage calculator, created with the Mortgage Advice Bureau, to work out the best deal for you.