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BoE: Mortgage borrowing rises to £6.6bn in May

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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BoE: Outstanding value of residential loans up 3.6%

The outstanding value of all residential mortgage loans was £1,561.8bn at the end of 2021 Q1, 3.6 % higher than a year earlier, according to the Bank of England’s (BoE) mortgage lending statistics.

The value of gross mortgage advances in 2021 Q1 was £83.3bn, 26.5% higher than in 2020 Q1, and the highest level since 2007 Q4, while the value of new mortgage commitments was 15% higher than a year earlier, at £77.5bn.

Meanwhile, the share of gross advances with interest rates less than 2% above bank rate was 59.1% in 2021 Q1, 13.3% lower than a year ago.

The share of mortgages advanced in 2021 Q1 with loan-to-value (LTV) ratios exceeding 90% was 1.1%, 4.1% lower than a year earlier, and the lowest level since these statistics began in 2007.

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The share for house purchase for owner occupation was noted at 64.1%, a rise of 17.3% on 2020 Q1.

The share of gross advances for remortgages for owner occupation was 18.0%, a decrease of 14.2% since 2020 Q1, and the lowest since these statistics began in 2007.

The value of outstanding balances with some arrears increased by 5.1% over the quarter to £15bn, and now accounts for 0.96% of outstanding mortgage balances.

Paul Stockwell, chief commercial officer at Gatehouse Bank, said: “Buyers’ insatiable appetite to move home has meant the value of new mortgages started the year at highs not seen since before the 2008/09 financial crash.

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“There has been frenzied activity in the market with movers searching for larger homes and more outdoor space, while the extension of the stamp duty discount to the end of June added more fuel to the fire in the first quarter of this year.

“The biggest stamp duty savings run out in just a few weeks’ time, yet measures from other housing indices suggest the frantic competition for property continues unabated.

“While lending may fall from these current highs, we still expect it to be an incredibly busy summer for the housing market.”

By Jake Carter

Source: Mortgage Introducer

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Bank of England carefully monitoring rise in house prices

The Bank of England is carefully monitoring the rise in house prices which has been largely fuelled by the extension of the stamp duty holiday.

A year ago activity in the housing market collapsed in the wake of the first lockdown with transactions dipping to a record low of 42,000 in April 2020.

Since then there has been a complete turnaround in the housing market in the past year, buoyed by the extension of the stamp duty cut introduced last summer.

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The tax holiday was originally due to end in March before the Government announced an extension to June. BoE figures published last month showed mortgage borrowing rose by a net £11.8bn in March, the strongest rise since the series began in April 1993.

“I think what we’re seeing in the housing market at the moment is being driven mainly by the tax holiday,” the BoE’s deputy governor Jon Cunliffe told the BBC today.

“There are some signs that people are making different housing choices and that may affect the future. It’s something we’re watching very carefully.”

House prices shot up 1.8 per cent month-on-month to 10.9 per cent last month, the highest level in nearly seven years. It followed a 2.3 per cent rise in April.

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The new record average house price is £243,000, up by almost £24,000 over the past twelve months, according to new Nationwide data released today.

Cunliffe’s comments come after Sir Dave Ramsden, another one of the central bank’s deputy governors, said the Bank of England expects the price pressures to be temporary.

“There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure,” Ramsden told the Guardian. “That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators.”

Inflation is at 1.5 per cent and is expected to rise above its two per cent target for a short period in the coming months.

By Angharad Carrick

Source: City AM

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UK inflation doubles in April as lockdown restrictions ease

UK inflation has more than doubled in April as energy and clothes prices pushed the consumer price index up to 1.5% amid the easing of lockdown restrictions.

A rise from March’s 0.7% readout, the figure comes more in line with the Bank of England’s expected rate of 2% by the end of the year.

Statistics published by the Office for National Statistics (ONS) identified rising household utility, clothing and motor fuel prices as the biggest drivers of the increase which was still partially offset by a large downward contribution from recreation and culture.

Gas and electricity saw big jumps with price rises of 9.4% and 9.1% respectively between March and April driven by a spike in global demand for wholesale gas.

A bounce in oil prices from $20 per barrel last year to around $70 today also put pressure on inflation and will continue to do so as demand increases as the global economy opens up again.

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Ambrose Crofton, global market strategist at JP Morgan Asset Management, said that “a confluence of factors including Brexit-related trade frictions, rising commodity and freight prices are adding cost-push pressure” to the manufacturing side of the economy.

End of furlough scheme could keep inflationary pressures at bay

Inflation is likely to increase further throughout the year as “the economy gradually reopens, the recovery picks up steam and supply constraints intensify in the sectors that were hit by the pandemic,” according to Silvia Dall’Angelo, senior economist at the International Business of Federated Hermes.

Dall’Angelo said higher wholesale gas prices could lead to hikes in regulated utility prices later in the autumn, pushing CPI inflation close to 3%.

But she notes that as inflationary drivers are “set to be largely cost-push and hence temporary” with residual disruption to the labour market likely to show up at the end of the furlough scheme in September, underlying inflationary pressures could be contained.

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Economic recovery could be a Trojan horse for inflation

However AJ Bell financial analyst Laith Khalaf said that “at current levels, UK inflation is nothing to fret about, but there is rising concern that the fiscal and monetary response to the pandemic has sown the seeds of an inflationary scare further down the road.”

The Bank of England showed no signs of tightening the reins just yet as it announced it would make no changes to monetary policy earlier this month with interest rates remaining at 0.1% for now despite its improved economic forecasts.

Khalaf said: “For the moment, the Bank of England is dismissing consumer price increases as a natural bounce back from the depths of the pandemic last spring. But the economic recovery could be a Trojan horse, smuggling inflation into the UK, right under the nose of central bankers.”

Khalaf noted that inflationary fears are already starting to creep into the market with the 10-year gilt yielding 0.9%, up from 0.2% at the beginning of the year.

Despite this Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson, notes real yields “remain very negative as guidance about interest rates continues to hold down nominal yields, even in the face of expected strong growth and rising inflation”.

“While breakeven rates on UK gilts are towards the upper end of where they have been over the last two decades, it is not clear that they are at a level that should be unduly concerning for the Bank yet.”

By Harriet Habergham

Source: Portfolio Adviser

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Bank of England predicts 7.25% growth in economy as interest rates held at 0.1%

The UK’s economy could grow by more than 7% in 2021, according to the latest Bank of England forecast – the fastest pace since the Second World War.

Their projection is that the UK gross domestic product (GDP) – a measure of the size of a country’s economy – will rebound by 7.25% and mark the best year of growth since official records began in 1948.
This represents a sharper recovery than the central bank’s previous forecasts, with 5% growth previously expected.
It comes after the pandemic saw the UK suffer the biggest drop in output for 300 years in 2020, when it plummeted by 9.8%.

But the Bank’s quarterly set of forecasts showed it downgraded its growth outlook for 2022, to 5.75% from 7.25%.

The rosier view for the economy this year came as the Bank’s Monetary Policy Committee (MPC) held interest rates at 0.1%.

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The Bank kept its quantitative easing programme on hold at £895 billion, although one member of the MPC voted to reduce it by £50 billion given the brighter recovery prospects.
In minutes of the latest decision, the Bank of England said the lockdown is set to see GDP fall by around 1.5% – far better than the 4.25% drop first feared.

It also sharply cut its forecasts for unemployment over the year.

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The Bank said: “GDP is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019.

“GDP is expected to recover strongly to pre-Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity.”

But it warned over “downside risks to the economic outlook” from a potential resurgence of Covid-19 and the possibility that new variants may be resistant to the vaccine.

Source: iTV

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Bank of England holds interest rate at 0.1%

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the bank rate at 0.1%.

The BoE has warned banks to be prepared for the possibility of negative interest rates within six months.

The committee confirmed that the COVID-19 vaccination programmes are improving the economic outlook, and since the MPC’s last meeting, they say financial markets have remained resilient.

UK GDP is expected to have risen slightly in Q4 2020 to a level around 8% lower than in Q4 2019, which is stronger than expected in the MPC’s November report.

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The bank suggests that there would be a “rapid” recovery in GDP towards pre-pandemic levels this year, due to the vaccination programme.

However, the BoE outlined that the outlook for the economy remains “unusually uncertain, and that it depends on the evolution of the pandemic, measures taken to protect public health and how households, businesses and financial markets respond to these developments”.

The MPC has said that it will continue to monitor the situation closely, and if the outlook for inflation weakens, the committee is ready to take any “additional action necessary to achieve its remit”.

Nick Chadbourne, chief executive of LMS, said: “It’s no great surprise that Bank Rate remains at 0.1%, and it’s good news for homeowners as it keeps mortgage rates down.

“LMS data shows that on average, borrowers taking advantage of low rates decreased their monthly payments by £236 in December.

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“Recently we’ve seen lenders prepare for a busy remortgage market in Q2 with a steady stream of high loan-to-value products returning to the market and the introduction of increasingly competitive rates.

“While product transfers can offer a great deal in terms of ease and efficiency, as competition between lenders grows, borrowers should be seeking advice to ensure they are accessing the best deals available on the market.”

Ian Warwick, managing partner at Deepbridge Capital, added: “The pace at which the vaccine rollout has progressed has been incredibly encouraging and will provide much needed hope for people and businesses alike.

“The government has worked hard in an incredibly difficult environment to create a capital lifeline to many businesses via the BBLS and CBILS, as well as long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme, but now we would urge that there needs to be even greater support – both via financial and via sustainable growth initiatives.

“Agile companies, which have survived 2020 and provide a product or service which has a genuine medium to long-term solution to a recognised problem, will continue to develop and grow but require capital to do so.”

Frances Haque, chief economist at Santander UK, said: “The MPC’s decision to leave bank rate unchanged at 0.1% was expected this month given rapid rollout of the COVID-19 vaccines, which will help boost confidence and support growth in the UK economy.

“However, the Bank of England remains committed to intervening should the financial markets and the UK economy need additional support measures as we move through 2021.“

By Jessica Nangle

Source: Mortgage Introducer

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Mortgage approvals reach to highest level since 2007

The number of mortgage approvals in November 2020 increased to the highest level since August 2007, according to the Bank of England Money & Credit data.

The number of mortgage approvals reached 105,000 in November, with net mortgage borrowing also increasing to £5.7bn.

In addition, effective interest rates on new mortgage borrowing ticked up to 1.83%.

Household deposits increased by £17.6bn in November, however there were significant withdrawals from national savings and investment accounts according to the data.

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Bank borrowing by small and medium-sized businesses was noted at £1.8bn, while net borrowing by large businesses was £0.2bn.

Tomer Aboody, director of property lender MT Finance, said: “The Bank of England figures provide further confirmation of the prevailing strength and confidence in the housing market, with the highest mortgage approval levels and further borrowings in over a decade.

“Households are looking to maximise space in their current homes by extending, converting lofts and refurbishing, as more time is spent at home.

“With mortgage rates so low, taking advantage of existing equity in homes has enabled people to borrow more for living expenses as they also deal with concerns over future employment and income, with so many industries affected by the pandemic.

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“Household deposits have increased with people saving, due to not being able to go away, out for dinners or even shopping.

“Consumers are being frugal with their spending and considering the threat of a possible recession on the horizon.

“How the government will look to tackle any forthcoming concerns with the Budget, the end of furlough and stamp duty relief will be interesting, since this new wave of the virus has come as a surprise and therefore further potential assistance is desperately needed.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “Not surprisingly, the mortgage market improved considerably at the end of the year but we shouldn’t look too closely at these figures because they reflect a period of particular improvement in market activity of the previous few months.

“Moves have slowed since although many are still trying hard to take advantage of the stamp duty holiday, which will be ending very soon.

“The likelihood of further lockdown restrictions will bring short-term pain to the market which hopefully won’t be reflected in reduced values.

“Certainly the greater availability of a vaccine, on the other hand, will provide some optimism.”

By Jake Carter

Source: Mortgage Introducer

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Bank of England: Loan values rise by 2.9% annually in Q3

Despite a decreasing share of high loan-to-value (LTV) borrowing, mortgage lending remained strong in Q3 with the outstanding value of residential loans up 2.9% compared to a year earlier.

The Bank of England’s (BoE) latest quarterly mortgage lending data revealed there were £1,527.3 billion of mortgages outstanding at the end of Q3.

Meanwhile the value of new mortgage commitments – which is lending which has been agreed to be advanced in coming months – went up by 6.8% when compared to the same quarter in 2019. It reached £78.9 billion, according to the BoE, which is the highest level since 2007.

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The value of gross mortgage advances during the quarter was down 14.7% on Q3 2019 at £62.5 billion.

What’s more the proportion of mortgages advanced during the quarter with LTVs of 90% or more were 3.5% which is 2.4 percentage points lower than a year ago.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “This is no real surprise with many lenders pulling back from this market, and it is only just starting to recover, which is good news for first-time buyers in particular.”

Commenting on the rest of the data he added: “The Bank of England figures show a strong lending market, as we have seen on the ground, with new commitments for the coming months some 6.8% higher than a year earlier.

“There is plenty of business in the pipeline which is working its way through as buyers try to take advantage of the stamp duty holiday. As long as they use good advisers – a mortgage broker and a switched-on solicitor – this should be possible, despite some scaremongering that they are already too late.”

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A ‘precarious’ market

But Karen Noye, mortgage expert at Quilter, thought today’s data painted a ‘precarious’ picture of the housing market at the moment.

“The market is clearly burning bright thanks to the fuel poured on it as a result of stamp duty cut but whether the fire can keep blazing is yet to be seen,” she said.

“The continued increase in house prices is likely to be unsustainable and if the stamp duty holiday is dropped in March and significant economic headwinds as a result of the pandemic start to bite, we may see a very different picture with borrowing and lending being significantly curtailed.”

Noye thought the fact the value of new commitments had increased by as much as 6.8% was ‘worrying’ and ‘should ring alarm bells’.

“While it would be foolish to draw comparisons between the mortgage market now and the one back when the financial crash hit in 2008, we are dealing with unchartered waters and it is worth proceeding with caution,” she said.

By Kate Saines

Source: Mortgage Finance Gazette

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BoE’s Haldane says UK recovering ‘faster than anyone expected’

Britain is recovering faster than anyone had expected from the economic impact of COVID-19, but businesses need better incentives and access to finance to invest in technology, BoE’s chief economist Andy Haldane said.

“UK GDP had, by July, recovered around half of its Covid-related losses, rebounding further and faster than anyone expected,” Haldane said in an article for the Mail on Sunday newspaper written jointly with the former chairman of John Lewis Partnership, Charlie Mayfield.

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Britain’s central bank said in a policy statement on Thursday the economy was recovering faster than it had forecast in August, though prior to that several policymakers had struck a more cautious tone than Haldane.

Haldane said he was writing in his capacity as chairman of a government commission to boost economic productivity.

Reporting by David Milliken; Editing by Chris Reese

Source: UK Reuters

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Bank of England: UK economy ‘likely’ to need further stimulus

Bank of England interest rate-setter Michael Saunders said today that it was “quite likely” that more stimulus will be needed for Britain’s Covid-hit economy in a downbeat speech on the outlook.

“I consider it quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the two per cent target,” Saunders said.

Growth was likely to disappoint relative to the Bank’s forecasts published last month, Saunders said.

He said an ongoing recovery was the result of a “benign window” – the combination of huge government spending and the relaxation of lockdown measures.

“This window may now be closing,” Saunders said, adding that a downside scenario for the economy would be “very costly”.

Saunders said the withdrawal of the government’s furlough scheme at the end of October was likely to lead to a spike in unemployment.

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“Unemployment is likely to rise significantly in coming quarters as the furlough scheme winds down and workforce participation recovers,” he said.

“The scale of the projected rise in unemployment (about 3½ percentage points) is similar to that seen in 2008-11, but it occurs much faster. Indeed, it would be, by some distance, the sharpest rise in unemployment for at least 50 years.

“While there are uncertainties around that forecast, my view is that the picture of a sharp rise in unemployment is – sadly – highly plausible,” he added.

On Wednesday, the Bank’s deputy governor Dave Ramsden and another rate setter, Gertjan Vlieghe, also warned the economy could suffer more damage from the coronavirus crisis than spelt out by the central bank last month.

Many economists expect the Bank to announce a ramping-up of its bond-buying programme in November.

By James Booth

Source: City AM