Mortgage lending in the UK showed the biggest net increase on record in March 2021, and UK households saved another £16.2 billion into bank and building society accounts, UK central bank data showed on Tuesday.
Net mortgage borrowing was £11.8 billion in March, the highest since Bank of England records began in April 1993.
Mortgage approvals for house purchase were 82,700 in March, lower than the recent peak of 103,100 in November 2020, but higher than the 73,000 in February 2020.
“Mortgage borrowing was very strong in March with individuals borrowing an additional £11.8 billion secured on their homes,” said the Bank of England.
“This was the strongest net borrowing on record since the series began in April 1993, with the previous peak in October 2006 (£10.4 billion).
“The strength in net lending reflected gross lending also reaching a new series high in March (£35.6 billion).
“The strong borrowing was driven by the expected ending of the temporary stamp duty tax relief at the end of March, which has now been extended to the end of June.”
AJ Bell financial analyst Laith Khalaf said: “Low interest rates, the stamp duty holiday, and a paradigm shift in homeworking, are collectively proving a heady cocktail for the property market, and consumers are looking to make the most of favourable financial conditions to climb the housing ladder.
“In March, the Chancellor announced the extension of the stamp duty holiday, which will clearly keep the housing market bubbling away for the next few months.
“Mortgage borrowers collectively took on £11.8 billion of additional debt in March, the highest figure since Bank of England records began in 1993.
“Alarm bells should be ringing that the previous peak in borrowing was in October 2006, just before the wheels were about to come off the global economy, because consumers, businesses, and the banking sector were drowning in unsustainable debt.
“However, there are some reasons you might believe this time really is different.
“Banks are now much better capitalised, and much stricter in terms of their lending activity, with higher deposits taken on mortgages.
“This doesn’t prevent a downturn in the housing market, but it reduces the chance of a catastrophic systemic meltdown if property prices falter.
“Interest rates are also extremely low, making debt more affordable for homeowners. The average interest rate paid by mortgage borrowers is now just 2.1%.
“But while that is clearly good for borrowers today, should interest rates rise, payments will get less affordable as fixed term deals expire.
“Pushing your finances to the limit to borrow as much as possible has never been a great idea, but when interest rates look like they can only head in one direction, it’s particularly dangerous.
“Right now, there’s no sign the Bank of England has any appetite to raise rates for the foreseeable future.
“All being well, when rates do rise, they will do so gradually, allowing consumers to slowly adjust to the higher cost of borrowing.
“The potential fly in the ointment is inflation, which could spark premature rate rises if it begins to take hold.
“Then, Threadneedle Street, we have a problem.
“Consumers continue to save large chunks of money into bank accounts paying little or no interest.
“These latest figures show the state of play in March, when full lockdown was still largely upon us.
“When the Bank of England next updates us on April’s consumer activity, we’ll be able to see if the reopening of the economy is beginning to put the pandemic savings habit into reverse.
“Consumers paid down less credit card debt in March, which tentatively suggests that might be beginning to happen.
“Nonetheless, a significant cash war chest has been built up over the last twelve months, and consumers need to decide what to do with it.
“With instant access accounts now paying just 0.11% on average, leaving it where it is doesn’t look like a great long term plan.”