Loans for house purchases fall in March, BBA reveals

British banks approved fewer mortgages in March ahead of a higher tax on buy-to-let properties, data from the British Bankers’ Associated showed on Tuesday.

Loans for house purchases fell to 45,096 in March from 45,646 in February, missing expectations of 46,500. Compared to March 2015, however, it was up 14%.

Re-mortgaging also fell to 24,833 in March from 25,034 the prior month while other secured borrowing rose to 8,519 from 8,479.

Overall, the number of mortgage approvals dropped to 78,448 in March from 79,159 the previous month.

Nevertheless, gross mortgage borrowing came to £17.1bn in March, up 64% compared to year ago and 29.5% compared to February. BBA said the rise was driven by the purchase of buy-to-let properties and second homes ahead of higher stamp duty charges on 1 April.

The average approval value of mortgages climbed to £184,200 from £180,900, after house prices rose as demand continued to outstrip supply.

"There will now highly likely be an appreciable easing back in buyer interest from the buy-to-let and second house buyers given that the April rise in stamp duty has kicked in," said Howard Archer, chief UK and European economist at IHS Global Insight.

"Increasing domestic economic and political uncertainties could also rein in housing market activity, especially in the run-up to June’s EU referendum."

Archer said he still sees housing market activity holding up "reasonably well" as buyer interest is supported by high employment and low interest rates. Many analysts don't see interest rates rising this year, Archer noted.

"Consequently, while house price growth may ease back from current levels, we still expect house prices to rise by around 6% over 2016 – with support coming from a relative shortage of properties as well as decent buyer interest."

Meanwhile, BBA also revealed in its report that unsecured borrowing by households has been growing 5.8% per year as a result of low interest rates and strong household finances.

Rebecca Harding, chief economic advisor at the BBA, said: “For households more widely, consumer credit continues to grow above real earnings growth, as improving consumer confidence and low interest rates combine to stimulate borrowing demand for personal loans, cards and overdrafts.”

For companies, net borrowing rose by £0.3bn in March with the real estate sector increasing its borrowing by £1.5bn but transport, storage and communication industries decreasing borrowing by £1.3bn, and the construction sector reducing borrowing by £0.4bn.

“Business borrowing is moderating within distribution, manufacturing, food and accommodation sectors, as large corporates use capital markets for their funding and both large and small businesses continue to build up deposits,” Harding said.