Mortgage lending hits record high in stamp duty deadline scramble

According to the Bank of England, mortgage borrowing reached its highest level since 1993 March as lenders signed off a record £11.8 billion.

The borrowing frenzy came as buyers scrambled to beat the expected end of the stamp duty holiday, which now been extended to June.

The overall number of approvals dipped from their recent record high of more than 100,000 in November to a nonetheless lofty 82,700 total individual approvals.

The temporary tax holiday means buyers who complete a sale on their primary home in time won't have to pay tax on the first £500,000 of the purchase and is thought to have spurred on the flurry of activity seen in recent months.

Financial Analyst at AJ Bell Laith Khalaf said that the stamp duty holiday, homeworking culture and low-interest rates were behind the "heady cocktail" that stoked March's record figures and voiced caution over the boom, pointing to the market crash which fuelled the global financial crisis in the first decade of the new Millenium:

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.

In 2006, lending peaked at £10,4 billion in October, just before a profusion of defaults on low-interest, subprime mortgages brought the global economy to its knees.

Better regulation and financial backing among banks compared to 2006 could help to buoy the effects of any potential market downturn, said Khalaf, but he still urged borrowers to be cautious amid the optimism of a market defying expectations:

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.

Effective interest rates – the actual rate borrowers pay on their loans – was at 1.95% in March, up just 0.23 percentage points from a historic low in August 2020.

Andrew Montlake, managing director of mortgage broker Coreco, said that "mad March" borrowing could be put down to the expected stamp duty deadline, but also warned that "When borrowing is as extreme as this, it never tends to end well".

The Bank data also revealed that consumers continued to make healthy deposits into their accounts, with some £16.2 billion deposited in March - more than triple the £4.7 billion monthly average for the previous financial year.