The number of people who secured a new deal on their mortgage climbed to the highest level since Liz Truss’s mini-budget nearly three years ago, official data released on Tuesday showed.
Some 41,800 homeowners remortgaged in June, up by 200 from May, making it the most active month since October 2022 when the mortgage market was rocked by the former prime minister’s ill-fated mini-budget.
The figures, published by the Bank of England, showed that homeowners capitalised on lenders offering more attractive mortgage deals in recent months after the central bank cut interest rates four times to 4.25 per cent from a peak of 5.25 per cent. The data captures people who remortgage with a new bank.
However, a sizeable group of borrowers who remortgage in the coming months will be hit by much higher monthly loan payments after their ultra-low interest rate deals expire. Interest rates were kept at below 1 per cent for more than a decade after the 2008 financial crisis, so many people took out long-term home loans during this period and have yet to refinance.
The Bank of England estimates that 41 per cent, or 3.6 million, of all borrowers will refinance to higher rates over the next three years. However, 28 per cent of this group will also see their mortgage payments fall over the same period after cuts to the base rate.
Alice Haine, a personal finance analyst at Bestinvest, said: “Existing homeowners emerging from cheap fixed-rate deals secured when interest rates were at rock-bottom are likely to be bracing for higher repayment costs when they eventually refinance, unless they have managed to clear a chunk of the outstanding balance.”
The Bank of England’s monetary policy committee, the nine-member panel who set the base rate every six weeks, are widely tipped to lower borrowing costs again next week by a quarter of a percentage point to 4 per cent. This has put downward pressure on rates for new mortgages already. Banks price their mortgage products before the official rate announcement.
The Bank said the effective interest rate paid on newly issued mortgages dipped for the fourth month in a row to 4.34 per cent in June from 4.47 per cent in May, helping to drive approvals for fresh home loans up for the second month in a row to 64,200 from 63,300 in the previous month. Analysts had expected a total of 63,100 approvals. Net mortgage lending jumped to £5.3 billion from £2.2 billion in May, well above analysts’ forecasts.
The rise in mortgage approvals reinforced signs that the property market was recovering from “its post-stamp duty [holiday] lull”, Ashley Webb, UK economist at Capital Economics, said. A relief on property transaction tax for first-time buyers ended in April. Webb said that if demand remained strong in the mortgage market, house price growth could accelerate to 4 per cent by the end of the year from 2.1 per cent presently.
Separately, the Bank of England said that households saved £7.8 billion in June, the highest monthly increase since January and up from the £4.3 billion increase in deposits in May.
Recent data from the Office for National Statistics has suggested that businesses laid off staff and curbed hiring, which may have intensified anxieties about job security among workers, which typically leads people to save more than usual.
Consumers spent £700 million on credit cards in June and, overall, borrowed £1.4 billion, up from £900 million in the previous month. Thomas Pugh, an economist at RSM, said this could signal an economic rebound in June after GDP contracted in April and May.