Buyers and homeowners locked into £246m of mortgages last year as they took advantage of record low interest rates.

What’s the latest?

Mortgage lending hit an eight-year high in 2016 as consumers made the most of record low interest rates.

A total of £246m was lent last year, 12% up on 2015’s total and the highest level since 2008, according to the Council of Mortgage Lenders (CML).

The growth in lending looks set to continue into 2017, with mortgage approvals for both house purchase and remortgaging rising in December, according to the British Bankers’ Association (BBA).

The number of home loans in the pipeline in December for people remortgaging jumped by 30% year-on-year to reach the highest level since October 2008.

There was a less dramatic increase in loans approved for people buying a property, but these still rose to a nine-month high.

Why is this happening?

Record low interest rates have contributed to the recovery in mortgage lending during 2016, despite the political uncertainty caused by the UK’s decision to leave the EU and higher Stamp Duty rates for buy-to-let investors.

The big jump in remortgaging numbers has been driven by homeowners wanting to lock into low rates before the cost of borrowing rises.

Meanwhile, lower interest rates have also helped people trade up the property ladder, while an increase in small deposit mortgages has provided a boost to first-time buyers, driving lending for house purchase.

Home for sale in Nuneaton.

Above: four-bedroom house for sale in Burton Hastings near Nuneaton.

Who does it affect?

The increase in mortgage lending is good news for both potential buyers and those looking to remortgage, as it indicates banks and building societies remain keen to do business.

But while the supply of credit may no longer be an issue, the ongoing shortage of properties on the market is continuing to keep transaction volumes low.

Not only do potential buyers have less choice, but they also face intense competition from other buyers, which is pushing prices higher.

Sounds interesting. What’s the background?

Going forward the recovery in the mortgage market seen last year is expected to continue into 2017.

Hansen Lu, property economist at Capital Economics, said: “With the economy looking resilient and confidence in the market continuing to improve, we expect this recovery to persist this year.”

But despite record low interest rates and a high level of competition among mortgage lenders, house price growth is expected to slow.

Increasingly stretched affordability, particularly in southern regions of the country, combined with higher inflation as a result of the lower pound are expected to act as a drag on the market.

Meanwhile, political and economic uncertainty as a result of Brexit is also expected to weigh on consumer sentiment.

Top 3 takeaways

  • Mortgage lending hit an eight-year high in 2016 as consumers made the most of record low interest rates.
  • A total of £246m was advanced during the year, 12% up on 2015’s total and the highest level since 2008.
  • The growth in lending looks set to continue into 2017, with mortgage approvals for both house purchase and remortgaging rising in December.

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