Mortgage approvals for home purchases fall in April as net borrowing hits a record low outside of the pandemic
- The loan amount fell to the lowest level since 1993 – excluding the Covid period
- Mortgage approvals for home purchases fell from 51,500 (March) to 48,700 (Apr)
- Higher interest rates continue to deter buyers
The amount borrowed on new mortgages fell to a new record low in April, according to the latest data from the Bank of England, as higher interest rates continued to deter buyers.
Net mortgage lending fell by £1.4bn in April, from net zero in March to £1.4bn in net redemptions.
This brought it to the lowest level – not counting the period during the Covid pandemic – since measurements began in 1993.
The number of approved mortgages for home purchases fell by more than 5 percent in April, from 51,500 in March to 48,700.
Mortgage rates are on the rise again, with the number of mortgage products on the market down 7 percent in a week as lenders react to higher-than-expected inflation and forecasts of further base rate hikes.
Higher interest rates weigh heavily on bank lending: Mortgage approvals fell from 51,500 in March to 48,700 in April according to the Bank of England
The average interest rate on new mortgages rose by 5 basis points to 4.46 percent in April, according to the Bank of England.
That number is likely to increase in the next set of numbers as several major lenders have increased their rates in recent weeks.
Mark Harris, CEO of mortgage broker SPF Private Clients, said: ‘With mortgage approvals winding down in April, it seems buyers are concerned about what’s going on in the wider economy and what they can afford.
“The worst of the pain may not be over yet, as another quarter point hike is expected this month as inflation proves to be more stubborn than the Bank of England previously forecast.”
Laura Suter, head of personal finance at AJ Bell says, “For many homeowners, borrowing more money and moving to the next house on the ladder with the same interest rates just isn’t an option.
“And others are too nervous about the direction of rates and the housing market to make that next move — so staying put seems like the safest option.”
House prices: UK average house price recorded biggest annual drop in nearly 14 years in May, says Nationwide
Why is there less desire to buy?
Lower mortgage approvals for home purchases suggest that consumer spending remains subdued.
Much of this will be due to higher mortgage rates and concerns about the economy in general.
The housing market is already starting to feel the impact, with average house prices registering their biggest annual drop in nearly 14 years last month, according to Britain’s largest building company.
Property values fell 3.4 percent a year in May, the biggest drop since July 2009, which recorded an annual decline of 6.2 percent, Nationwide said.
At the same time, inflation has turned out to be more stubborn than many had expected, causing swap rates to rise.
What the financial markets think will happen is reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange one stream of future fixed interest payments for another stream of floating interest payments, based on a fixed price.
Five-year Sonia swaps (used for mortgage pricing) are up around 4.4 percent in recent weeks, up from 3.8 percent in early May.
However, Chris Sykes, mortgage adviser at Private Finance, says there is no need to panic and, as things stand, this is not a repeat of the mini budget when even the cheapest mortgage rates rose above 6 percent.
He says: “They are not a cause for manic panic, but rather an opportunity for lenders to review their rates in response to the increased cost of borrowing and changed expectations regarding future base rates.”