The number of mortgage approvals made to homebuyers last year was the highest since 2007 – despite the housing market being effectively shut for part of the year as the coronavirus crisis hit.
The Bank of England said that at 818,500 in 2020, the number of mortgage approvals for house purchase surpassed levels seen in 2019 (789,100).
Last year’s figure marked the highest annual total since 2007, the Bank confirmed.
Approvals hit a record low of 9,400 in May 2020, but they picked up sharply in the second half of the year, the Bank’s Money and Credit report said.
In a sign of future mortgage lending, 103,381 approvals for house purchase were recorded in December last year, which was only slightly lower than in November 2020.
A temporary stamp duty holiday in England and Northern Ireland which has been in place since July 2020, and similar tax breaks in Wales and Scotland, are due to end soon.
Industry bodies have warned this could lead to a property transactions “cliff edge”.
Nitesh Patel, strategic economist at Yorkshire Building Society, said: “Mortgage approvals for home-movers outperformed 2019, despite activity coming to a standstill for weeks during the first lockdown.
“In many ways it was a year of two halves, with an active market prior to the lockdown, which came to a hard stop in March. When the market reopened last summer, the rapid uplift in activity took many by surprise.
“The market has been stimulated partly by buyers re-evaluating their housing needs, particularly for larger homes with access to green space, but stamp duty relief, which has potentially helped buyers make significant savings on their purchases, has been the biggest driver in housing activity.
“When the scheme ends on March 31, we expect activity to slow to more normal levels.
“However, there’s a risk that many would-be buyers have agreed sales which may not complete in time to benefit from the tax relief. This could potentially cause many sales to fall through.”
Laith Khalaf, financial analyst at AJ Bell, said that with mortgage approvals at their highest level since 2007 last year as consumers paid down a record amount of debt, “you wouldn’t guess there was a devastating international crisis in 2020 simply by looking at consumer banking activity”.
He said: “The fact mortgage approvals are at their highest level since 2007 sets alarm bells ringing given what happened in 2008.
“The expiry of the stamp duty holiday at the end of March will likely take some steam out of the housing market, and many would view that as a positive thing, particularly those saving for a house deposit.
“The good news is that mortgage lending is much more responsible today than before the financial crisis, which means there should be no systemic problem with the banking sector as a result of a slowdown in the property market.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “There was a significant uptick in lending in the second half of the year as borrowers rushed to take advantage of the stamp duty holiday.
“The desire for more space, both inside and out, also played a part, and extremely cheap mortgage products also helped.”
Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors, said: “Looking forward, we don’t anticipate any drastic change in prices, which will continue to be supported by shortage of stock and perhaps more first-time buyers taking advantage of a levelled playing field once investors lose their market advantage after the stamp duty concession ends.”
The report also showed that households’ consumer credit borrowing shrank at the fastest rate in more than a quarter of a century in December.
The annual growth rate in consumer credit borrowing, which includes credit cards, personal loans and overdrafts, stood at minus 7.5% in December, marking a record low since the data started in 1994.
Within the figure, borrowing on credit cards contracted by 16.2% – which was also a record low for this borrowing method.
The Bank said that in total, people made net consumer credit repayments of £16.6 billion last year, marking the weakest figure for one year borrowing on record.
The typical rate charged on overdrafts was little changed at 20.51% in December.
The Bank said new personal loan rates fell slightly to 5.38% typically in December.
The cost of credit card borrowing edged up to 17.76% in December, from a low point of 17.49% in November.
Cautious households also continued to shore up their savings. The net flow of deposits was £20.9 billion in December, up from £18.4 billion in November.
And there were smaller withdrawals, at £2.7 billion in December, compared with £6.3 billion in November, from National Savings and Investment (NS&I) accounts. Rates on some NS&I products have recently been cut.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said households may use some surplus cash to pay down debt.
He said: “In addition, many households likely will purchase imported items, especially foreign holidays and new cars, when they feel more confident.”