Potential buyers owed £7bn in March, down from £4.6bn in February, according to the Bank of England. But property experts warn the market could slow as people tighten their belts.
Andrew Montlake, managing director of UK mortgage broker Coreco, said: “In the coming months people’s borrowing power is likely to decline as lenders factor in the additional cost of living.
“Interest rates are rising to contain spiraling inflation, energy, food and fuel bills have soared, and tax hikes have come in full force.
“Much will depend on the labor market and how it holds up in 2022, especially if we enter a recession.”
Ross Boyd, founder of mortgage comparison platform Dashly.com, said: “The main challenges facing the market right now are an outrageous lack of inventory, interest rate hikes and what is shaping up to be an unprecedented crisis in the cost of living.
“Rising rates and soaring inflation mean affordability is set to be the defining narrative of 2022. Lenders are now starting to look at people’s finances in ever greater detail.
“This is especially the case given that the annual growth rate for all consumer credit rose to 5.2% in March, the highest rate since February 2020.”
The Bank of England’s latest Money and Credit Report showed around 70,700 mortgage approvals granted to homebuyers in March, a total which the Bank said was “little changed” and higher than the pre-pandemic average.
Remortgage approvals, which only relate to home loans taken out with another lender, rose slightly to 48,800 in March.
That total remained below the pre-pandemic average, but was still the highest figure since 52,100 mortgages in February 2020.
Rob Gill, of London-based Altura Mortgage Finance, said: “Demand in the mortgage industry is increasingly being driven by remortgages as borrowers race to get the best possible rates ahead of daily rate hikes. mortgage lenders.”
Adrian Lowery, financial analyst at investment platform Bestinvest, pointed to a rise in interest rates already paid on new mortgages.
“A detail in the Money and Credit report reveals that the ‘effective’ interest rate – the actual interest rate paid – on newly contracted mortgages rose 14 basis points to 1.73% in March, while the rate on outstanding mortgage loans ticked up two basis points to 2.04%.
“It confirms that homebuyers and mortgagers are facing higher lending rates, as well as tougher borrowing rules.”
Household borrowing using consumer credit rose in March at the fastest annual rate since before the UK’s coronavirus lockdowns began.
Consumer credit includes forms of borrowing such as credit cards, personal loans, auto dealer financing, and overdrafts.
During the last annual increase, credit card borrowing increased by 10.6%, according to the Bank’s report.
StepChange Debt Charity said a third of its clients in March had a negative budget – where income is insufficient to meet essential costs – up four percentage points from January.
Richard Lane of StepChange said: “High inflation in the cost of basic goods and services, such as energy bills and food, means households that already have little ability to curb spending cannot absorb higher costs without going into debt or suffering significant hardship.
“With March data reflecting the worsening situation even before April’s energy price hikes, the coming months will be challenging for households on tight budgets.”