Mortgage approvals up in May amid rising borrowing costs

Net mortgage approvals for house purchases increased from 49,000 in April to 50,500 in May, while approvals for re-mortgaging saw a rise from 32,500 to 33,600 during the same period.

In terms of money lent to consumers, individuals repaid, on net, £0.1 billion of mortgage debt in May. This followed the record £1.5 billion net repayments in April (if the period since the onset of the Covid-19 pandemic is excluded).

The BoE found that during May, households, on net, withdrew £4.6 billion from banks and building societies, which marked the highest level of household withdrawals on record (for this monthly series starting in October 1997).

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages rose by 10 basis points, to 4.56% in May.

Net borrowing on consumer credit by individuals decreased from £1.5 billion in April to £1.1 billion in May.

Within the household deposits measure, net withdrawals of interest-bearing sight deposits increased significantly from £5.4 billion in April to £11.4 billion in May. Non-interest-bearing sight deposits marked the seventh consecutive month of net withdrawals at £3.3 billion in this month.

Paul Heywood, chief data & analytics officer at Equifax UK, commented: “Today’s figures from the Bank of England serve as a time capsule back to a less tumultuous period in May – a time the Bank and Governor likely wish they could get back to.

“Consumers, meanwhile, are facing the financial double whammy of high costs for both goods and borrowing as both May and June saw inflation remain at historic levels. The Bank’s figures show that the fiscal policy of base rate rises has depressed consumer borrowing, but there is likely to be more pain on the horizon as rates are predicted to trend upwards over the summer.

“Despite mortgage approvals increasing, there remains a serious concern that the UK is headed for a ‘mortgage shock’ as homeowners come to the end of their pre-inflation deals. While consumers in the UK have done remarkably well to manage their finances thus far, we are seeing signs of emerging stress.”