UK mortgage borrowing increases but consumers are cautious – BoE

UK mortgage borrowing hit its highest level since the end of the stamp duty holiday in January, but consumer credit only rose as households remained cautious, figures from the Bank of England.

Mortgage borrowing rose to £5.9bn from £4bn a month earlier and mortgage approvals rose from 71,219 to 73,992, reflecting the busy UK housing market at the start of 2021. Both figures were above the pre-pandemic average.

Home purchase approvals, an indicator of future borrowing, rose to 74,000 – the highest since July 2021 and well ahead of the pre-Covid average of 66,700.

The borrowing figure was the highest since September, when the Chancellor’s extended deadline for the reduction of stamp duty on property purchases ended. Many commentators expected a sharp slowdown in property transactions after the holiday ended, but the market remained buoyant as households continued to rethink their property needs.

Away from the booming property market, consumers have been more cautious, borrowing an additional £0.6bn – below the £1bn average before the coronavirus pandemic. Only another £0.1bn was borrowed on credit cards.

Households deposited a further £7.7billion with banks and building societies – the highest figure for seven months, suggesting people have started hiding money again after loosening their belts in December.

The BoE survey captures consumer behavior with the Omicron wave receding but with a cost of living crisis looming in the form of tax hikes, soaring energy costs, rising food bills rise and higher interest rates. Consumer confidence plunged to its lowest level in more than a year in February, a separate survey showed last week.

Adam Hoyes at Capital saving said: “A moderate rise in consumer credit suggests that households have been quite cautious at the start of the year. With higher interest rates on the horizon and the cost of living crisis only worsen, we would not be surprised after a rebound in February to see credit growth remain weak in the months ahead.

“The only bright spot continues to be the housing market. As households rein in borrowing for other means, they still seem happy to borrow to buy homes.”

Russia’s invasion of Ukraine is likely to further affect spending and consumer confidence, with pressure on energy and food costs adding to the general uncertainty created by the biggest land dispute in Europe since World War II.

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