LONDON: UK mortgages increased last month, recovering from a rare drop in July linked to reduced tax relief for homebuyers, but consumers remained cautious about their borrowing, showed Wednesday Bank of England data.
Net mortgage lending rose 5.293 billion pounds ($ 7.24 billion) in August, rebounding from the net repayment of 1.758 billion pounds in July. New mortgage approvals edged down to 74,453.
A Reuters poll of economists had indicated a net increase of 3.7 billion pounds in mortgages in August and to 73,000 mortgage approvals during the month.
The UK housing market has been booming since summer 2020, helped by a pandemic surge in demand for larger properties as more people work from home and the tax incentive offered by the Minister of Finance Rishi Sunak.
This incentive was cut in half on July 1 for homebuyers in England and Northern Ireland and is due to expire completely at the end of that month. Similar tax breaks in Scotland and Wales have already ended.
Data on Wednesday showed consumer borrowing also rose in August, rising by £ 351million net after rising just £ 32million in July. Economists polled by Reuters had expected a more modest increase of 300 million pounds.
Nonetheless, consumer credit was 2.4% lower than in August 2020, highlighting how many households remained cautious about their spending over the summer when COVID-19 cases resumed and more many people had to isolate themselves at home.
Economists say further momentum is likely to be lost in the coming months due to rising inflation and supply chain issues with the economy reopening, including the lack of truck drivers who hinders the fuel supply.
“Overall, we are increasingly concerned that the economy will soon take a step back,” said Paul Dales, economist at Capital Economics. “It would be food for thought for the Bank of England, which appears to intend to raise interest rates in the coming months.”