(Bloomberg) -- Britain’s housing-market recovery continued into March as mortgage approvals rose for a sixth month, Bank of England figures show.  

Banks and building societies authorized 61,325 home loans, up from 60,497 in February and the most since September 2022. Economists had expected 61,500. Unsecured credit, including credit card debt, rose £1.6 billion ($2 billion), slightly higher than forecast.

Buyers are being lured back into the housing market by a brighter economic outlook and increased affordability after a sharp fall in mortgages rates since last summer. Separate data from HM Revenue & Customs, the UK tax authority, showed property transactions climbing for a third month to 84,200 in March.

However, a recent resurgence in borrowing costs has raised questions over whether the recovery can continue. 

The threat was underlined on Monday when Natwest, Santander and Nationwide became the latest big lenders to increase mortgage rates this month in response to rising swap rates, which are used  to set the bulk of mortgage products. For the 1 million households due to refinance fixed-rate mortgages by end of the year, new loans will be pricier than the ones they are currently on. 

What Bloomberg Economics Says...

“The ongoing rise in mortgage approvals in March may indicate stronger demand and house prices in the coming months. Yet, it is also likely to reflect an appetite to secure mortgages before the recent re-pricing in interest rate expectations that has led to many lenders increasing their rates. With affordability looking stretched again, we expect mortgage applications to slip back and headwinds for the housing market to persist.”

—Niraj Shah, economist. Click for the REACT

The move higher in rates has come as investors reappraise how far the Bank of England will cut interest rates after warnings by policymakers of persistent price pressures and hotter-than-expected inflation readings in both the UK and US. Traders, who were pricing in as many as six quarter-point cuts in 2024 at the start of this year, now expect just two.

“The slight uplift in mortgage approvals in March reported by the Bank of England reflects the increased stability seen in the mortgage markets so far this year,” said Emily Williams, director of research at real-estate agent Savills. “We expect the market to continue to be somewhat stop-start until the Bank of England can definitively signal the end of the battle to control inflation through a cut to the base rate.”

The average 2-year fixed-rate mortgage is now 5.9%, compared with around 5.5% back in January, according to Moneyfacts. The BOE said the effective rate on newly drawn mortgages fell 17 basis points to 4.73% in March.

The amount of mortgage lending actually advanced barely rose in March as an increase in borrowing was offset by the highest level of repayments since June last year.

The BOE also said that UK’s broad measure of money supply rose year-on-year for the first time in nine months, adding to signs that the economy is exiting recession.

M4 excluding intermediate other financial corporations — a measure watched closely by monetarist economists — climbed 0.3%, ending a run of falls that coincided with the UK’s mild recession.

Monetarists, such as Simon Ward, economic adviser to Janus Henderson, and Tim Congdon, founder of the Institute of International Monetary Research, believe the economy is driven by the quantity of money in circulation and its velocity — how many times it changes hands. Economists who track the money supply closely predicted the sharp rise in inflation and also Britain’s recession last year, though the Bank of England is cautious over using the figures to guide their thinking.

“This is a clear sign that the drag from higher interest rates is fading,” Ashley Webb, UK economist at Capital Economics, said on the money supply data. “Our forecast for interest rates to be cut in the coming months (perhaps in June) suggests the economy will continue to recover this year.”

The BOE said that households deposited £8.5 billion with banks and building societies in March, the biggest inflow since October 2022, as people took advantage of returns offered by savings accounts. Some £3.2 billion was put into tax-free ISAs, while £2 billion was placed into time deposits as households pulled money out of non-interest bearing accounts.

(Updates with details, charts, reaction)

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