There was a surge in remortgage activity in August, as borrowers look to lock in to cheap deals ahead of an expected interest rate rise.
According to figures from UK Finance, the new trade association which has replaced the British Bankers’ Association, there were 27,768 remortgage approvals in August, well up on the monthly average of 25,056 over the previous six months and 15% higher than in August 2016.
Since the financial crisis in 2008 mortgage rates have steadily fallen. The Bank of England cut interest rates in August 2016 from 0.50% to 0.25% – the lowest on record and the first interest rate cut since 2009 when the financial crisis was at its peak.
This led to a number of lenders slashing their rates and competition in the mortgage market heating up.
However, with the Bank of England hinting that it could raise interest rates for the first time in a decade in order to curb inflation, economists are predicting a hike could come as soon as November.
Jeff Knight, marketing director at Foundation Home Loans, said: “Record low mortgage rates continue to sustain market activity, but given even the most dovish members of the Bank of England’s Monetary Policy Committee are now adding to the calls for an interest rate rise, this picture could very quickly change.
“A ‘wait and see’ approach is best avoided for first-time buyers and existing owners considering remortgaging.”
The number of mortgages approved by British banks also went up in August for the second month in a row, suggesting the market is picking up steam following the Brexit vote.
A total of 41,807 mortgages were approved in August, slightly up on July’s figure of 41,644.
Monthly gross mortgage borrowing exceeded expectations, going up 6% to £24.2 billion in.
Mohammad Jamei, UK Finance’s senior economist, said: “Housing market activity is in Goldilocks territory, growing only modestly since the start of the year, though the mix of activity has shifted towards first-time buyers, away from buy-to-let and cash.
“There is also some rebalancing across regions, as activity picks up in the north of England, Wales and Scotland, away from London, the South East and East Anglia.”
So far this year, demand from first-time buyers and remortgagers has been driving the housing market, supported by attractive mortgage rates.
However, UK Finance expects the pace of growth to slow as the economic outlook becomes more challenging.
Samuel Tombs, chief economist at Pantheon Macroeconomics, said: “The recent jump in banks’ wholesale funding costs in response to the MPC’s warning that Bank Rate will rise over the coming months means that new mortgage rates will increase soon too.
“Meanwhile, CPI inflation still looks set to outpace growth in nominal wages for another six months. As a result, fewer would-be homebuyers will pass banks’ affordability tests and many won’t feel confident enough to make major financial commitments.”
