UK mortgage approvals held steady in January, falling slightly but less than expected, as homebuyers raced to finalize property purchases before upcoming tax changes take effect in April.
According to the Bank of England (BoE), banks and building societies approved 66,189 home loans in January, only 316 fewer than December’s total of 66,505. This figure exceeded economists’ forecasts, which had predicted a sharper drop to 65,500. Meanwhile, net mortgage lending surged to £4.21 billion ($5.3 billion), reflecting a high number of previously approved mortgages being finalized.
Stamp Duty Deadline Fuels Homebuying Activity
A key factor driving demand is the looming Stamp Duty Land Tax (SDLT) changes in April, which will reduce tax relief for homebuyers. Property website Rightmove recently warned that failing to complete a transaction before the deadline could cost some first-time buyers over £11,000 in extra charges.
This has fueled a rush in the housing market, as buyers aim to take advantage of current lower tax rates before the policy shift. However, estate agents caution that the market could slow in the second half of the year, as stretched buyers grapple with elevated mortgage rates and persistently high house prices relative to incomes.
Surge in Consumer Credit Borrowing Suggests Retail Sales Boost
Beyond the housing market, the BoE’s report highlighted a sharp rise in consumer credit borrowing, indicating that UK households are increasingly turning to credit cards and loans.
• Net consumer credit borrowing soared to £1.74 billion ($2.1 billion) in January, up significantly from £1.06 billion in December—the highest level in a year.
• Credit card borrowing saw a threefold increase, reaching £1.07 billion, the most since November 2023.
This suggests that a stronger-than-expected rise in January retail sales was partly financed through unsecured credit, as households looked to maintain spending despite financial pressures.
Savings Levels Remain High, Slowing Economic Growth
Despite the surge in credit borrowing, the BoE data shows that households are still prioritizing savings, posing a challenge for the UK economy’s recovery.
• Household deposits with banks and building societies grew by £8.4 billion in January, surpassing recent monthly averages.
• Households deposited £5.4 billion into interest-bearing sight accounts and £2.2 billion into tax-free ISAs.
• Meanwhile, £1.2 billion was added to non-interest-bearing accounts, while £1.4 billion was withdrawn from interest-bearing time accounts.
This continued cautious approach to savings is a blow to Chancellor Rachel Reeves’ hopes of boosting economic activity, as consumer confidence remains subdued.
Economic Outlook: A Confidence Gap Holding Back Growth
Economists warn that the UK economy will struggle to recover unless consumer confidence improves and spending increases.
“Until there is a revival in animal spirits and consumers feel confident enough to spend rather than save, the economy will continue to underperform,” said Thomas Pugh, economist at RSM UK.
As the UK housing market navigates rising borrowing costs, tax changes, and affordability challenges, analysts expect shifts in demand dynamics in the coming months. Whether consumer spending rebounds will be a key factor in determining the pace of economic recovery in 2025.
