Mortgage borrowing hits highest level in nearly two years

The amount of mortgage debt Brits took on in July reached its highest level since November 2022 in another sign that consumer confidence is returning.

Brits borrowed £2.8bn of mortgage debt in July, the highest since £.2bn in November 2022 and up from £2.6bn in June, according to the latest Money and Credit data from the Bank of England.

Net mortgage approvals for house purchases, which is an indicator of future borrowing, increased to 62,000 in July, the highest since September 2022 and up from 60,600 in June.

Paul Matthews, Senior Director of Risk at leading independent consultancy Broadstone, said that it was a positive sign of consumer confidence returning to the housing market.

“We expect the reduction of the Bank of England’s Base Rate at the start of August to further stimulate demand in the market as we enter the busy Autumn period [but] we do not expect rates to significantly reduce… so lenders will still need to exercise caution around affordability as we have seen large increases in mortgage arrears recently,” he added.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners said: “Improving mortgage rates and robust wage growth have eased the affordability challenge for some buyers in recent months, though borrowing costs remain relatively high.”

“The interest rate cut at the start of this month with the prospect of more rate cuts to come looks set to boost the mortgage market revival as buyers and sellers look to take advantage of improving borrowing conditions,” she added. 

The housing market has been slightly shaky recently, with an uptick earlier this year, followed by a surprising dip in August.

Robert Gardner, Nationwide’s chief economist, said the housing market remained subdued but was coping with the increase in interest rates.

“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to strengthen gradually as affordability constraints ease,” Gardner said.

The market has fully priced in a November rate cut and has put the chance of a September cut at roughly one in four.

Consumer credit returns to growth

Net consumer credit borrowing rose to £1.2bn in July from £0.9bn in June.

Net borrowing through credit cards remained stable at £0.5bn in July, while borrowing through other forms of consumer credit – such as car dealership finance and personal loans – increased to £0.7bn, from £0.4bn in June.

Consumer confidence hit its highest level since September 2021 this July, and remained unchanged in August despite a deterioration in households’ expectations for the broader economy.

“Given the increase consumer credit was driven by personal loans and auto finance rather than credit cards, it indicates that this uptick in borrowing is being driven by increased confidence in economic stability rather than ‘subsistence borrowing’ which typically manifests itself in credit card volumes,” Matthews said.

However, Matthews cautioned lenders to be careful that borrowers aren’t overstretching themselves before the long run up to Christmas.