Stamp duty break 'boosts mortgages'


The number of mortgage approvals for house purchase has reached a two-year high as borrowers rush to take advantage of a stamp duty holiday before it ends, a high street banking report has said.

Some 38,092 applications were approved in January, the highest figure seen for two years and a 34% rise on January 2011, despite the general mood of consumer caution around borrowing, the British Bankers' Association (BBA) said.

The body said the relatively strong figure reflected people looking to use the current two-year stamp duty exemption for first-time buyers before it ends next month, while remortgage approvals have remained broadly unchanged.

But analysts warned that the mortgage approval figures were only a "temporary boost", with activity having reached around two-thirds the level of the long-term average.

BBA statistics director David Dooks said: "January saw the high street banks approve more mortgages for house purchase than of late, despite low household confidence, as some people try to complete transactions before the stamp duty holiday ends in March.

"Demand for unsecured personal borrowing remains low as consumers continue to repay debt."

Gross mortgage lending of £8.3 billion in January was 2.2% higher than in January 2011, although cautious householders continued their determination to pay down their mortgage debts and improve their balance sheets.

High repayments by householders meant that net mortgage lending only increased by £700 million in January, the BBA said.

New spending on credit cards amounted to £7.1 billion, slightly lower than the £7.2 billion spent over the Christmas period in December but above the six month average.

But consumers continued to pay off more than they spent on credit cards, with £7.4 billion worth of repayments made in January, a figure unchanged from December.

The BBA said demand for personal loans and overdrafts remained "weak", with repayments continuing to outweigh new lending, resulting in a net repayment of £300 million.

Meanwhile, personal deposits and savings recorded a £3.6 billion increase in January as consumers tried to bolster their savings.

The BBA reported that the net lending to non-financial companies fell by £2.8 billion in January after a drop of £2.2 billion in December.

It said demand for borrowing from industry remained "subdued" as low confidence was impacting on lending to businesses.

The BBA's report comes after HM Revenue and Customs figures showed that home sales have had their strongest start to the year since January 2008.

Estate agents have also reported a recent surge in first-time buyer activity but fear the fragile housing market could be disrupted further when the exemption, which raises the threshold for first-time buyers from £125,000 to £250,000, ends on March 24.

HSBC recently examined first-time buyer loans taken out since the start of the holiday in March 2010 and found that around half were for a home which would normally have been liable for the duty.

Howard Archer, chief UK and European economist for IHS Global Insight, said of the latest mortgage figures: "This may well provide some support to house prices in the near term, but it will be a temporary boost."

He warned that job losses and muted earnings growth as well as the prospect of tougher borrowing conditions were countering the cheap deals being offered by lenders as the Bank of England maintains the base rate at a historic 0.5% low.