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Net mortgage borrowing climbed in May to £6.6 billion from £3 billion in April, the latest Bank of England (BoE) data has revealed.

Despite this significant leap, the BoE said borrowing still remained below the record figure of £11.4 billion achieved in March of this year.

Mortgage approvals for house purchases inched up slightly in May to 87,500 from 86,900 in April. This was also lower than the peak of 103,200 in November 2020.

Today’s data also revealed approvals for remortgage – which only captured remortgaging with a different lender – increased slightly to 34,800 in May, from 33,400 in April. This remains low compared to the months running up to February 2020, the BoE said.

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The ‘effective’ rate – the actual interest rate paid – on newly drawn mortgages went up by two basis points to 1.90% in May.

The BoE said this was marginally above the rate in January 2020 (1.85%), and compared to a series low of 1.72% in August 2020. The rate on the outstanding stock of mortgages remained unchanged at a series low of 2.07%.

Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “It’s not surprising that the mortgage market is continuing to perform well, with homebuyers keen to move before the first change to the Stamp Duty holiday at the end of June.

“There’s also a lot of competition amongst lenders, with mortgage rates nearing record lows in some cases – this is of course great news for borrowers”

He added: “We expect figures for June to be even higher, and for activity to return to more normal levels after the threshold for Stamp Duty has been lowered to £250,000.”

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Meanwhile, Karen Noye said these figures demonstrated how buyers were ‘soaking up the last of the favourable stamp duty conditions before tapering began’.

“Once the holiday has fully come to an end in October we may enter into a market where buyers choose to wait and see and the number of people looking to buy significantly reduces,” she said.

But she warned the end of furlough and other schemes could change the landscape going forward.

“For some time, the housing market has been propped up by government schemes and initiatives like the stamp duty holiday and then 95% mortgage scheme, which has encouraged people to borrow at times where they may have chosen to sit on their hands.

“Once the government’s helping hand has been withdrawn, we may see people opt for a wait and see approach and mortgage borrowing could plummet.

“Similarly, part of the reason the market has been so hot as of recent is due to people wanting to move to properties with gardens or home offices in light of the restrictions on movement and working.

“As things get back to normal this frenzy may start to fade and people feel happier to stay put as cities open back up and outside space is lower on the agenda.”

By Kate Saines

Source: Mortgage Finance Gazette

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