UK mortgage debt borrowing has continued its decline, dropping from net zero in March to £1.4bn of net repayments in April, according to the latest Bank of England Money and Credit statistics.
This is the lowest point since July 2021 when net repayments stood at £1.8bn, and the lowest on record if the Covid-19 pandemic period is excluded (with stats beginning in April 1993).
In April, gross lending decreased from £19.7bn to £17.0bn, while gross repayments fell for the third consecutive month, reaching £18.5bn.
Net approvals for house purchases, an indicator of future borrowing, also fell from 51,500 in March to 48,700 in April. Approvals for remortgaging experienced a minor increase of 300, moving from 32,200 in March to 32,500 in April.
The ‘effective’ interest rate on newly drawn mortgages in April saw a slight increase of 5 basis points to 4.46%, and the rate on outstanding mortgage stock also rose marginally from 2.73% in March to 2.75% in April.
Steve Seal, CEO of Bluestone Mortgages, said: “Today’s drop in mortgage approvals, combined with higher-than-expected inflation levels, suggests a recovery is further away than anticipated,” he said.
Seal added, “With persistent inflationary pressures, affordability challenges will continue to be prevalent for borrowers and prospective buyers.”
Emma Cox, MD of real estate at Shawbrook, added: “Buyer confidence remains diminished as a further interest rate hike and year-on-year house price growth have suppressed demand.
“Those who still plan to progress with their property plans are likely to be keen to act swiftly to conclude deals and limit the risk of further base rate increases. Homeowners too will be keen to push on with re-mortgage plans ahead of a further possible rate hike.
“Landlords seeking to diversify their portfolios will also be looking to act quickly to mitigate the risks of current market uncertainty, and benefit whilst rental demand remains high. There are opportunities to capitalise on, with some landlords reportedly leaving the market and professional landlords being likely to want to make the most of these. As well as restoring a sense of balance to the market, this should bring with it an injection of quality, much needed rental stock.”
Reaction
Karen Noye, mortgage expert at Quilter:
“The latest money and credit data from the Bank of England point to a housing market that is freezing up at a time when property transactions should be flowing nicely. Excluding the pandemic, the amount of mortgage debt borrowed is at its lowest level on record, with £1.4bn of net repayments in April. With mortgage approvals also falling and yesterday’s 25% fall in property transactions, the outlook for the housing market is somewhat bleak as we head into the summer months.
“Despite the more secure economic footing, and the fact a recession seems to have been avoided for now, the path of interest rates remains extremely uncertain. We are expecting the Bank of England to have to raise rates again at is next meeting, and with inflation refusing to come down more quickly it is not out of the realms of possibility that further rises later in the year will be required. Clearly interest rates are having a significant effect on the housing market.
“On the flipside, however, deposits into bank and savings accounts bounced back in April following a £3bn net withdrawal in March. With £3.6bn net flow into these accounts could suggest people are making hay in the new tax year, with interest rates at the best they have been for a long time and cost of living concerns persisting. Clearly, they are still not anywhere near inflation, so savers need to make sure they are assessing their option with their long-term savings as these accounts may not be most appropriate.
“Even with a brighter economic picture, household finances are likely to remain buffeted by the volatility that inflation and higher interest rates bring. It is crucial that people review their borrowing and savings strategies regularly given the cost that fluctuating rates can quickly add. Seeking professional advice to make informed financial decisions is crucial in an environment such as this, and especially given the unique circumstances facing the BoE.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“The Bank of England’s money and credit data shows net borrowing of mortgage debt in April at its lowest level in 30 years, which is when the data series started (excluding the Covid lockdown period).
“This is the eighth consecutive fall in mortgage lending and a result of higher mortgage rates and people’s finances squeezed due to the high cost of living.
“Net house purchase approvals rose in February and March but have fallen slightly in April by 2,800, which could be a reflection of a shorter month due to the Easter holidays.”
Ben Waugh, managing director at more2life:
“Rates have not yet hit their peak and are forecast to rise again before eventually starting to fall. While new borrowers are naturally impacted, there are those on two-year fixed rate deals of 2.57% who are in for a shock when they need to remortgage – either due to their new repayments or more stringent affordability criteria.
“If you are worried, you need to speak to a mortgage broker to see if they can use their knowledge and experience to find you the right option for your current situation. They should also encourage you to consider other options such as equity release, retirement interest-only mortgages or later life mortgages if you are over-55s. At the moment, there are few easy answers but with the right advice, you can make informed choices which suit your situation.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“In amongst the news of rising interest rates and high inflation we find an increase in the number of remortgage approvals in April. This is as expected with so many people coming off fixed rate deals this year. However, with the ‘effective’ interest rate paid now standing at 4.46%, the option of fixing for a further two or five years is unlikely to be something borrowers will be willing to do. Perhaps that might change this month with many predictions saying the Bank of England is likely to raise rates again and by as much as one per cent.
“Lenders are caught between a rock and a hard place, increasing base rates inevitably mean mortgage rates will creep up but that puts pressure on existing borrowers’ affordability. This places more borrowers in a vulnerable position when the burden from the rising cost of living is at the highest level we have known for a very long time. Although there appear to be many properties coming to market, the prospect of a larger than expected rate rise later this month could dent confidence, which in turn might mean we see house prices start to fall.”
Craig Fish, managing director at London-based mortgage broker Lodestone:
“Though this data shows a drop in mortgage approvals for house purchases compared to March, our own activity levels ticked along steadily during the spring months.However, the recent turmoil in the mortgage market due to sticky inflation, with swap rates increasing, has made lenders nervous.
“Given that the Bank of England is now likely to increase the base rate further still, I suspect we haven’t seen the back of mortgage rate increases just yet. This will no doubt lead to a slowdown in buyer activity and mortgage approvals moving forward. Many people still need to remortgage, of course, but overall activity levels are likely to be slightly lower in coming months.”
Aaron Strutt, product and communications director at Trinity Financial:
“Our brokers have been busy over the past two months dealing with lots of remortgages and an increasing number of purchase transactions. The issue is that every time the Bank of England hikes the base rate, more confidence is sapped from the mortgage and property markets. We need a period of financial stability and at the moment it seems quite a way off.
“Many of the first-time buyers we are talking to are keen to get onto the property ladder, and they understand that rates are likely to be between 4% and 5.5%. It’s those homeowners who have enjoyed the ultra-low mortgage rates of the past that are finding the more expensive deals available today harder to accept.”
Lewis Shaw, founder of Teesside-based broker Riverside Mortgages:
“Our own activity levels in April were on a par with previous Aprils. However, current mortgage market volatility, coupled with murmurings that the base rate could peak at 5.5%, could lead to a slowdown in mortgage approvals in the coming months. That being said, most borrowers that we speak to are taking the new rates in their stride. No one likes them, but the attitude seems to be: it is what it is.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:
“Approvals for house purchases were down in April, and following the events of the past week, with lenders on red alert, activity in the housing market is set to dry up again, as confidence goes from boom to bust.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions:
“While this data shows mortgage approvals were down slightly in April, in our experience it was a month promising a steady summer housing market. However, at the end of May things took an unexpected turn following the inflation data, catching many off guard and casting doubt on the market’s outlook. The immediate impact of lenders’ response to this recent shock remains uncertain.
“The housing market in Scotland remains resilient, with first-time buyers displaying a strong appetite for homeownership and no significant decline in property prices. Unfortunately, renewed turmoil surrounding interest rates and product availability has dealt a severe blow to the buy-to-let sector.
“Hope was beginning to emerge but now this sector of the market faces prolonged uncertainty as lenders and investors carefully consider their next moves. As news of the interest rate turmoil spreads, enquiries for mortgage refinancing have already surged and so it is crucial that considered advice is given and knee-jerk costly reactions avoided.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages:
“The ailing UK mortgage market has cast a shadow over the housing sector, and after the events of the past week there is mounting concern. Unless there is stability in interest rates to provide a respite to households, the challenges of 2023 are likely to persist.”
Tomer Aboody, director of property lender MT Finance:
“Lower mortgage approvals in April are disappointing, indicating that there is less confidence in the market than seemed to be the case as recently as the previous month.
“Interestingly, households deposited an additional £3.6 billion with banks and building societies during the month, suggesting people are being cautious, retrenching and waiting to see what happens with inflation and interest rates.
“Transactions are also down compared with where we were before the pandemic so some assistance from the government in order to boost to the market and encourage a pick-up in volumes is now required.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“With mortgage approvals slipping in April, it looks as though 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 April, increasing by five basis points to 4.46%.
“The worst of the pain may not be over with another quarter-point rate rise expected this month as inflation proves to be more stubborn than the Bank of England previously forecast.
“Swap rates, which underpin the pricing of fixed-rate mortgages, rose last week on the back of the inflation news, leading many lenders to raise their mortgage rates.
“However, Swaps have since slipped back to where they were before the data was released, suggesting that we need to become accustomed to some volatility in the market for a while to come.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“The key point for us in these numbers is the slip in net mortgage approvals for house purchase, mainly reflecting decisions made a few months previously.
“Although, of course, more than a third of buyers on average are not dependent on finance it is still a significant number.
“There is no doubt buyers are a little more cautious than they were earlier in the year as many don’t need to rush given the reduction in competition for seemingly every property we saw for most of last year.
“Despite recent wobbles in inflation and interest rates there is still pent-up demand which needs to be satisfied, resulting in some serious negotiations as buyers and sellers try to establish a new market level.”
Steve Seal, CEO of Bluestone Mortgages:
“Today’s drop in mortgage approvals combined with inflation running at higher-than-expected levels suggests a recovery is further away than anticipated.
“As inflationary pressures persist, affordability challenges will remain prevalent for borrowers and prospective buyers alike.
“For those struggling to keep up with mortgage repayments or worried about how to step onto or up the property ladder, remember that help is always at hand.
“It is the duty of our industry, and at the heart of what we do to support borrowers during tough times and point them in the right direction so that they, too, can achieve their homeownership goals.”
