Photographer: Chris Ratcliffe/Bloomberg

Drive to Beat Tax Increase Sends U.K. Mortgage Demand Surging

U.K. mortgage lending rose the most in more than seven years in January, adding to evidence of a surge in demand by property investors before a tax increase takes effect in April.

Gross mortgage lending jumped 38 percent compared with a year earlier, the biggest increase since July 2008, the British Bankers Association in London said on Wednesday. Approvals for loans rose an annual 27 percent, with remortgaging up 42 percent as homeowners tried to lock in low interest rates.

With stamp duty on second homes being hiked by 3 percentage points in April, buy-to-let investors are trying to complete purchases quickly. Data this month from Countrywide Plc showed the number of homes acquired by rental homeowners rose 71 percent in January from a year earlier.

“The start of the year has seen a significant rise in mortgage borrowing,” said Richard Woolhouse, chief economist at the BBA. “It seems that this has been driven, in part, by borrowers looking to get ahead of the increases in stamp duty.”

The Bank of England is currently monitoring buy-to-let housing for signs of potential threats to financial stability. Policy makers may find it harder to properly assess the market until the impact of the tax increase unwinds.

According to Howard Archer at IHS Global Insight, while the change could exert upward pressure on house prices in the near term, after April it “may modestly dilute housing market activity and upward pressure on prices.”

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