Mortgage approvals in the UK fell in April to the lowest level since June 2020 as higher interest rates and the cost of living squeeze cooled people’s desire to buy homes with a mortgage.
Mortgages approved last month slid to 65,974, from 69,531 in March, the lowest level since the height of the first wave of the coronavirus pandemic when 40,706 mortgages were initiated, according to Bank of England data published on Tuesday.
Martin Beck, chief economic adviser to the EY Item Club, said the housing market had previously remained relatively immune to higher rates and the real income shock but these figures showed slowing demand. He expected “housing market activity” would continue to cool through 2022 with “price growth decelerating”.
Jeremy Leaf, former Royal Institution of Chartered Surveyors residential chair, agreed, saying that “successive monthly increases in the cost of living as well as interest rates” were compromising the confidence of households to take on additional debt.
The drop in approvals contrasted with the roughly flat level economists had expected and came as the effective interest rate on new mortgages rose 0.09 percentage points in April to 1.82 per cent. The rate on the outstanding stock of mortgages ticked up 1 basis point to 2.05 per cent.
However, Leaf cautioned that the drop-off in approvals did not necessarily mean that a large price correction in the UK housing market was coming.
“The continuing shortage of houses” meant that “significant changes in prices” were unlikely, he said.
Beck added that a “soft landing looks likely”, as the impact of rising interest rates only feeds through gradually due to the “high share of outstanding mortgages on fixed rate terms of two years or more”.
While lower approvals signal that the heat may be coming out of the housing market, consumer credit growth was healthy. The additional £1.4bn additional borrowing by households was above the average monthly net new borrowing for the previous 12 months and also higher than in March. Most of the new borrowing was on credit cards.
The relatively healthy levels of borrowing at a time of low unemployment will keep the pressure on the Bank of England to raise interest rates in the coming months.
The likely upward trajectory of rates is keeping the “demand to remortgage very strong”, according to Hina Bhudia, partner at Knight Frank Finance.
“Certain lenders allow you to book rates up to nine months in advance so thousands of borrowers are bringing forward decisions that in normal circumstances would have been put off,” Bhudia said.
Andrew Montlake, managing director of mortgage broker Coreco, said the drop-off in approvals was surprising as April and May were “exceptionally busy” months for brokers and lenders, with borrowers looking to lock in low rates before further rises.
However, he said the data only accounted for those switching between loan providers, so they would not have included activity among borrowers who decided to roll over into a new loan with their existing mortgage lender.
“Perhaps the fact this data only shows remortgages to other lenders suggests people are increasingly being forced to remortgage with existing lenders due to affordability issues,” he said.
Additional reporting by James Pickford