Mortgage lending set to level off as stamp duty holiday nears deadline

UK mortgage borrowing hit record levels in March, driven in part by the stamp duty holiday, with borrowers taking on £11.8bn of extra debt – the highest figure since Bank of England (BoE) records began in 1993.

Rachael Savage, owner of Simplified Accounting in Towcester, has seen more clients considering a house move due to the stamp duty reprieve but also to better accommodate remote working.

“I mainly work with limited companies but have seen an increase in requests for accountant reports for re-mortgages and moving from directors who have seen business growth over the last 12 to 18 months in online retail,” says Savage.

Savage believes it is unlikely interest rates will change this year and has faith in banks’ tighter lending criteria.

“My instinct is that the housing market will slow once the stamp duty holiday ends, but I hope responsible lending and the checks of the mortgage companies mean clients aren’t over-stretching their finances,” she says.

“The same issues apply to those in employment… they could be without a job and have issues with repayment, as well as business downturns for those running their own businesses. Politically, I can’t see interest rates moving massively.”

Karen Chase, director at HB Accountants in Hoddesdon, Hertfordshire says some of her clients are investing in a second property.

“Some are looking to purchase a larger property, as working from home has been successful for them, while others are investing in a second property with the majority driven by the stamp duty savings.”

Like Savage, Chase thinks it’s unlikely there will be interest rate hikes this year.

“It is hard to interpret economic data right now and we speculate that interest rates will be held at 0.1 percent for the foreseeable future,” she adds. “The [BoE] will certainly be looking to see how successful the vaccination programme is before making any decisions.”

However, she does expect the housing market frenzy to ease off.

“Summer is typically a busier time for the housing market, but there is likely to be some levelling off in demand when the stamp duty holiday comes to an end and house prices could dip,” she says. “However, we are emerging from lockdown with optimism, and this could serve to keep the market buoyant.”

For now, the boom looks set to continue. Buyers remain exempt from stamp duty payments on the first £500,000 of a residential property purchase in England and Northern Ireland until the end of June, then the first £250,000 until September 30, 2021. As such, Halifax’s April House Price Survey found house prices had continued to rise – up 8.2 percent compared with the same period last year.

Near-term demand is expected to continue, but house price growth is forecast to slow, according to Russell Galley, managing director at Halifax.

“The influence of the stamp duty holiday will fade gradually over the coming months… but low stock levels, low interest rates and continued demand [are] likely to continue to underpin prices,” he said. “However, we do expect recent levels of activity to be sustained over the short-term as buyers continue to search for homes with more space and potentially better suited for their new working patterns.”

However, Galley added that he remains “cautious” over the medium-term as the government’s furlough scheme is unwound and the potential for higher unemployment increases.