Mortgage borrowing surges ahead of stamp duty changes
Net borrowing or mortgages spiked by £9.7bn in March as house buyers looked to clinch deals before higher stamp duty taxes came into effect.
Net borrowing levels exceeded £13bn, according to the Bank of England, as the rise compared to February beat market forecasts of £3.2bn.
EY ITEM Club’s Matt Swannell said the surge in lending was due to tax changes announced by Chancellor Reeves last year.
“Borrowers completed purchases to beat the deadline and benefit from lower transaction costs,” Swannell said.
House buyers will now pay taxes on properties of over £125,000, which is half the previous threshold. Those purchasing houses for the first time will now have to pay stamp duty on homes costing more than £300,000.
Those adjustments may have knocked mortgage approvals as the Bank said levels fell for the third month in a row.
Swannell suggested the latest data mirrored trends seen when stamp duties were hiked in the past.
“Given the experience of a similar stamp duty change in 2021 prompted large falls in approvals after the deadline, the recent cooling in mortgage activity likely has further to run in the near-term.
“This should be partially offset by the impact of lower mortgage rates, with swap rates having fallen substantially in response to US tariff announcements.”
Pantheon Macroeconomics’ Elliott Jordan-Doak said: “Households in March added to their savings, cut back on credit accumulation, and had fractionally fewer mortgages approved for house purchases.
“We think this reflects consumers beginning to show signs of modest caution in response to the rising uncertainty in March as Trump’s ‘Liberation Day’ deadline approached.”
“Taking a step back, the bigger picture is one where Mr. Trump’s tariff salvo has the potential to upend the gradual path of falling saving, stronger borrowing, and robust housing demand shown by households.”
Mortgage data precedes Bank decision
The Bank of England’s Monetary Policy Committee (MPC) members will be analysing new mortgage data, which provides strong insight into demand among UK households, ahead of their interest rates decision next week.
Economists widely expect the Bank to lower interest rates by 25 basis points to 4.25 per cent as part of its “gradual and careful” approach to rate-cutting.
Inflation in the UK has remained sticky and remained above the Bank’s two per cent target, with analysts predicting inflation to rise above three per cent for the month of April.
Bank of England Governor Andrew Bailey has suggested that Trump’s tariffs could have a disinflationary effect but said rate-setters had to remain cautious.