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UK mortgage approvals rise by record 827% as stamp duty holiday deadline looms

·3-min read
Estate agents boards are lined up outside houses in south London June 3, 2014. Britain's house prices rose at their fastest annual pace in nearly seven years last month and signs of bottlenecks in the construction sector underscored the upward pressures on the market, surveys showed on Tuesday. House price growth picked up to an annual pace of 11.1 percent in May, mortgage lender Nationwide said, fanning concerns that the property market could be overheating.  REUTERS/Andrew Winning   (BRITAIN - Tags: POLITICS BUSINESS REAL ESTATE)
Britain's housing boom reached a fever pitch in May. Photo: REUTERS/Andrew Winning

UK mortgage approvals surged by 827% year-on-year in May as house prices recorded their highest rate of growth since 2014 and the stamp duty holiday deadline looms.

The alarming year-on-year rise was owing to a locked down housing market during the UK's first lockdown in May 2020.

As per the Bank of England's latest figures, mortgage approvals in May 2021 were 87,545, up from 9,444 a year ago.

"May 2020 marked the low point, lower than the credit crunch lows as the UK government shut the housing market, but, mortgage approvals in May 2021 were 36% above their 10-year average as a combination of pent up demand, working from home, and the stamp duty holiday gets Britain moving," said Anthony Codling, CEO of property platform Twindig.

Mortgage approvals were up slightly from 86,900 in April 2021. The figure was lower than the recent peak of 103,200 in November 2020, the BOE said.

Net mortgage borrowing rebounded to £6.6bn ($9.1bn) in May from £3bn in April, but remained below the record £11.4bn in March.

"Eager buyers will have been pushing their lawyers to complete before the end of the stamp duty holiday this month, however what's very interesting indeed is that new mortgage approvals continued strongly in May," said managing director of Barrows and Forrester, James Forrester.

Watch: Why are house prices rising during a recession?

Read more: Stamp duty cuts extended and 5% deposit mortgages from April

"This being so late in the day compared to the stamp duty holiday ending means that we have to ask ourselves, is the runaway property market set to continue its climb even after the tax is restored?"

The threshold for stamp duty, a tax on property transactions in England and Northern Ireland, will remain at £500,000 until 30 June for residential purchases. This was initially supposed to end in March.

Meanwhile, Nationwide’s latest index showed house prices are up 13.4% annually. June saw the third consecutive month-on-month rise (0.7%), after taking account of seasonal effects. Prices in June were almost 5% higher than in March.

England saw annual house price growth increase to 9.9%, from 6.4% in the first quarter of the year. Within England, Yorkshire & Humberside was the strongest performing region, with prices up 13% year-on-year.

This is the strongest price growth seen in the region since 2005 and pushed average prices to a record high of £183,982.

“Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take home pay, largely because mortgage rates remain close to all-time lows – in fact, on this measure affordability remains broadly in line with its long run average, as shown in the chart below," said Robert Gardner, Nationwide's chief economist.

Will Rhind, head of mortgage advice at Habito, has said that with the re-introduction of 95% mortgages and with Nationwide recently increasing their income multiple to 5.5x, there are more mortgage options than there were this time last year for first time buyers.

"Once you do have the deposit together, the good news is that interest and mortgage rates are extremely competitive and still at historical lows.”

Watch: How much money do I need to buy a house?