Lending to home-buyers reached its strongest levels since 2007 across the last three months of 2020, according to a trade association.
UK Finance recorded 243,250 loans in the fourth quarter of 2020, including first-time buyers, home-movers and buy-to-let purchases, with December being a particularly strong month.
It was the highest total since the fourth quarter of 2007, when the figure was 266,730.
Mortgage lending overall was lower in 2020 than in 2019 as the coronavirus pandemic put the brakes on housing market activity last spring, but the strong performance towards the end of last year meant activity was stronger than expected, UK Finance said.
The temporary stamp duty holiday which was due to end on March 31 will now remain unchanged until the end of June, the Government announced in this week’s Budget.
There will then be a tapered holiday for a further three months, when the “nil rate” stamp duty band will halve from £500,000 currently to £250,000. From October, it will return to its normal threshold of £125,000.
Stamp duty applies in England and Northern Ireland.
On Thursday, it was confirmed that the temporary reduction to land and buildings transaction tax (LBTT) – the equivalent of stamp duty in Scotland – will still end in March.
In Wales, the land transaction tax (LTT) temporary tax reduction period has been extended to the end of June.
A new UK-wide 5% deposit mortgage guarantee scheme will be available for home-movers and first-time buyers from April, with HSBC UK and NatWest having expressed early support for the initiative.
UK Finance said it expects there to be a slowing in house purchase activity later in 2021 once the stamp duty holiday has ended.
It added that re-mortgages with equity withdrawn became more popular in the fourth quarter of 2020, driven by use for deposits for second homes, new buy-to-let (BTL) properties or to help with deposits for adult children buying their first properties.
With industry and Government coronavirus support measures in place, the fourth quarter witnessed only modest rises in arrears and minimal repossessions, in line with earlier 2020 trends. While arrears are expected to rise in 2021, UK Finance said lenders remain prepared to help customers.
Eric Leenders, managing director, personal finance at UK Finance, said: “Home-buyers looking to take advantage of the stamp duty holiday were behind the housing market’s strongest quarter for purchases in 13 years in the final quarter of 2020.
“Despite this uptick in activity, annual purchases for the whole year were around a tenth lower than the previous year, due to a complete shutdown of the market in the first lockdown.
“The stamp duty holiday helped to boost activity at the end of 2020, and it is likely many of these purchases have been brought forward in order to take advantage of the savings.
“The Chancellor’s announcement in the Budget to extend the stamp duty holiday until the end of June before then phasing it out will prevent a cliff edge, reducing the risk of house sales collapsing and will prove beneficial for all parties involved in the housing market.”
Martijn van der Heijden, chief financial officer at mortgage broker Habito, said: “The extension of the stamp duty holiday, and its tapering until early autumn, coupled with the 95% Government-backed mortgage scheme launching next month, could super-charge the demand for property across the UK.”