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Mortgage lending jumps higher, but uncertainties ahead

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In its monthly summary on lending activity and the wider financial environment, UK Finance has revealed that mortgage lending in October reached £23.1bn – with high street banks responsible for £15.3bn of this lending.

However, despite the increase in borrowing, the trade association warned that the housing market is a “little mixed, as some parts hold up better than others.”

Driven by strength in remortgage activity of homeowners and increasing first-time buyer (FTB) numbers, October’s £23.1bn of lending represented a 14% year-on-year increase from the £20.3bn borrowed in October 2016.

Remortgaging approvals in October of 34,036 were up on the six monthly average of 27,163, and was 37% higher than October 2016.

House purchase approvals of 40,488 in October, however, was a little weaker than the monthly average of 41,447 over the previous six months, and dropped 3% year-on-year.

“Taking a step back, this means overall activity levels in 2017 will be similar to that of 2014-16,” said UK Finance.

“In other words, there has been little recovery in property transactions over the last four years,” the report continued.

The report also noted that the proportion of activity favours FTBs more, with cash and buy-to-let (BTL) landlords making up a small portion of overall activity.

“This is perhaps not a big surprise,” commented UK Finance, “as FTBs have been supported by a variety of government housing schemes, good credit availability and competitive mortgage rates while tax changes have weighed on BTL and cash activity.”

UK Finance’s senior economist Mohammad Jamei said: “The anticipated bank rate rise saw a flurry of remortgage activity as many homeowners took advantage of the competitive rates on offer.”

He continued: “Borrowing was also boosted by stronger first-time buyer activity as this segment benefitted from good credit availability, lower rates and government housing schemes.”

Brexit concerns

UK Finance also noted indications that businesses are continuing to exercise a “cautious approach” to borrowing – with demand for credit from small and medium sized businesses falling in the third quarter.

“A contributing factor to this, unlikely to be of much surprise, is uncertainties caused by the vote for Brexit, which is holding back output expansion and investment,” UK Finance commented.

Indeed, in the latest Agents’ Summary of Business Conditions survey, it was noted that expectations around the UK’s future trading relationship was a drag on spending, with investment expectations weaker for the next two years.

“Businesses have continued the trend of bolstering their cash reserves amidst a cautious business landscape due to Brexit uncertainties,” said Jamei.

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