Net mortgage approvals for house purchases increased from 49,000 in April to 50,500 in May, The Bank of England has revealed.
According to the Money and Credit statistical report for May, approvals for remortgaging also saw a rise, from 32,500 to 33,600.
On net, individuals repaid £0.1bn of mortgage debt throughout the month, after a record £1.5bn net repayments in April.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages rose by 10 basis points, to 4.56% in May.
However, net borrowing on consumer credit decreased from £1.5bn to £1.1bn.
Households withdrew approximately £4.6bn from banks and building societies, which marked the highest level of household withdrawals since recording started in October 1997.
Reaction:
Charlotte Nixon, mortgage and financial planning expert at Quilter:
“These figures don’t account for the last few weeks of mortgage mayhem which will have further muddied these incredibly turbulent waters.
“However, there were problematic signs appearing in May as people raided their savings during the month…these scary figures show just what an impact the cost of living is having on people’s finances.
“With rates now well into the 6% range for many, you can expect that those contemplating a move or purchasing their first home will be spooked.
“With house prices having already dropped modestly this year, all eyes will be on how the latest mortgage shock translates into property prices.
“Fortunately, the recent creation of the Mortgage Charter will help keep repossessions at bay for the moment as participating lenders have agreed to a significant 12-month delay in initiating repossession proceedings against borrowers who are unable or unwilling to meet long-term payment obligations.
“This extension offers some slack for struggling homeowners, allowing them additional time to stabilise their financial situations.
“This should at least help stop a flood of properties coming onto the market as people’s homes get repossessed and lenders try to recoup their money.
“Similarly, borrowers will now have the opportunity to make adjustments to their mortgage terms for a short period, such as switching to interest-only payments.
“This change can provide immediate relief by reducing monthly repayments. Importantly, borrowers can later return to their original mortgage deal within six months, ensuring continuity and stability while not impacting their credit score.
“This will prevent some people from falling into debt, but the sad reality is that this will not be possible for all and there are going to be millions of people in this country seriously struggling over the next few months.
“The only small ray of light is that net borrowing on consumer credit by individuals decreased from £1.5 billion in April to £1.1 billion in May. In this interest rate environment it would be a real worry to start to see this shoot up. People can quickly find themselves in a dangerous debt spiral, which can become incredibly hard to come out of.”
Steve Seal, CEO, Bluestone Mortgages:
“While today’s figures show an uptick in mortgage approvals, this does not take into account the Bank of England’s recent 0.5% rate rise in its bid to ease inflation.
“However, as inflation continues at higher-than-expected levels, so too will the financial pain for those looking to take their first or next steps onto the property ladder.
“With the average two-year fix now above 6% and the cost of living likely to remain high for the foreseeable future, affordability is the key challenge facing consumers.
“For those struggling to keep up with mortgage repayments or worried about how to step onto or up the property ladder, we urge you to seek guidance.
“In times like these, it’s the duty of our industry and at the heart of what we do to support homeowners and buyers by signposting them to the help available as well as innovating to meet their evolving needs.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Although mortgage approvals ticked up again in May, buyers are concerned as to what’s going on in the wider economy and what they can afford.
“The average rate on new mortgages continued to rise in May, increasing by 10 basis points to 4.56%.
“The worst of the pain may not be over with further rate rises possible as inflation proves to be more stubborn than the Bank of England previously forecast.
“Swap rates, which underpin the pricing of fixed-rate mortgages, are still edging upwards, with lenders pulling deals and repricing higher. This suggests we will see some volatility in the market for a while to come.”
Jonathan Samuels, CEO of Octane Capital:
“Current market conditions are erratic at best and we’ve seen unpredictable monthly movement with regard to the level of mortgages being approved so far this year.
“This is largely due to the Bank of England’s decision to keep increasing interest rates, with buyers having to reassess their position in the market, only to return to find the goal posts have moved once again.
“As a result, the number of approvals being seen from one month to the next is up and down like a yo-yo and this demonstrates the tricky landscape buyers are attempting to negotiate in order to climb the ladder.”
Nicholas Christofi, managing director of Sirius Property Finance:
“The property market is struggling to find its feet at present and while a monthly increase in the number of mortgage approvals will certainly help boost sentiment, it’s likely to be short-lived given we’ve seen a thirteenth consecutive increase to the base rate.
“Mortgage market activity also remains significantly lower than this time last year, which highlights just how much the market has cooled in recent months.”
Jason Ferrando, founder and CEO of easyMoney:
“Despite a promising start to the year, the Bank of England’s aggressive approach to managing interest rates has inevitably dented buyer confidence and this decline in market activity is clear when it comes to the level of mortgages being approved.
“While we’ve seen the number of mortgage approvals rally on a monthly basis, they remain off the pace set just a few months prior and some way below last year, with yet another interest rate hike doing little to steady the ship.
“As a result, we can expect the muted market activity levels of recent months to persist, as fewer buyers are able to secure a mortgage, while those that can will be restricted in terms of just how much they can offer.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“The lending figures for May make for good reading with gross lending going up following declines in recent months.
“It bodes well for the immediate future that mortgage approvals have also risen although they are still low compared with the last decade.
“The remortgage figures have also gone up, which is not surprising as many people took two-year fixed rate products during the Covid pandemic stamp duty holiday era.
“The problem is that for many of those people who bought at the height of the market, they may struggle with a big rise in their monthly payments as rates for many could be three times higher than two years ago.”
Stuart Wilson, chairman of Air Academy:
“As net mortgage approvals rise slightly from 48,900 in April to 50,500 in May, the market has proved its remarkable resilience against the challenging headwinds it currently faces.
“Given the slight backlog of completions, this may have bolstered some of the figures so the real test will be the updates in June and July as the impact of successive rate changes becomes more evident.
“That said, the Government is still aiming to halve inflation this year and the recent package of support announced to help those struggling with mortgage payments will no doubt boost confidence.
“However, as ever with the UK housing market, we must temper our interpretation of current market behaviour with a longer-term and arguably more customer-centric view.
“Having seen historically low rates over the last few years, we are heading back into a higher interest rate environment – at least for the time being.
“While the Government measures will go some way to help, eventually people will need to either repay or manage their mortgage borrowing through other means.
“Advisers need to be speaking to their clients about all their options including the potential need to use later life lending products to borrow into retirement.
“Being prudent and prepared will help to ensure that homeowners are better able to deal with economic factors beyond their control.”
John Phillips, national operations director at Just Mortgages:
“Despite rising interest rates and a real dip in consumer confidence, the Bank of England statistics have once again defied expectations with a rise in both the number and the value of mortgage approvals in May.
“This once again shows the resilience of the UK housing market and the appetite or need of people still to buy property and move home.
“The rise in the number of remortgages is less astonishing – in fact it’s more of a surprise that the numbers aren’t higher, with 1.5 million people due to come off a fixed rate this year.
“But with continued escalation of interest rates, many people could face their monthly payments tripling which will cause a real payment shock for many.
“While conditions are definitely tougher for mortgage brokers, arguably their help and advice have never been more needed than it is right now.
“Brokers are needed not only to find like-for-like remortgages but also to find more creative solutions for those who are really struggling to meet the new payment amounts, which may involve increasing the term of the mortgage for example, while always making borrowers aware of the implications on the overall amount of interest they will pay.”
