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Mortgage approvals dip below pre-pandemic levels – BoE

  • 31/05/2022
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Mortgage approvals dip below pre-pandemic levels – BoE
Mortgage approvals for house purchases and remortgages in April fell to 65,974 and 47,799 respectively, below pre-pandemic averages.


According to the Bank of England’s (BoE’s) Money and Credit statistics, the average number of approvals for house purchase in the 12 months to February 2020 sat at 66,700, while the remortgage average was 49,500. 

House purchase approvals have steadily declined since the start of the year, dropping from 73,220 in January, 70,240 in February and 69,531 in March. 

April’s remortgage approvals were down on the 48,681 seen in March. 


Drop in mortgage approvals ‘no surprise’ 

Tomer Aboody, director of MT Finance, said given the rise in house prices, it was “no surprise” that mortgage approvals for purchases had fallen. 

He added: “Less supply and more demand will always lead to higher pricing. 

“With both new mortgages and remortgages at lower levels than they were pre-pandemic, a shift is being seen in activity towards a more ‘normal’ time, before stamp duty holidays. As higher mortgage rates are on the cards, buyers are taking advantage of the last remaining lower rates before the inevitable spike, with those remortgaging desperate to lock into a fixed-term mortgage for as long as possible.”  

Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “This latest reduction confirms what we have been seeing at the sharp end over the past few months – successive monthly increases in the cost of living as well as interest rates are compromising confidence to take on additional debt and having an inevitable knock-on effect on price growth. 

“The continuing shortage of houses in particular means that we’re unlikely to see significant changes in prices but certainly there is less competition, which is also resulting in more time being taken to exchange contracts.” 


Lending volumes and average rates rise 

Gross mortgage lending rose from £26.2bn in March to £26.5bn in April while gross mortgage repayments increased from £20bn to £21.5bn. 

Net borrowing of mortgage debt fell from £6.4bn to £4.1bn, which BoE said was below the pre-pandemic average of £4.3bn in the year to February 2020. 

The ‘effective’ interest rate, the actual interest rate paid, on newly drawn mortgages increased by nine basis points to 1.82 per cent in April. The rate on the outstanding stock of mortgages ticked up one basis point to 2.05 per cent.

Industry figures suggested rising rates was leading people to choose longer fixed rate terms on their mortgages. 

Mark Harris, chief executive of SPF Private Clients, said: “Borrowers continue to favour longer-term fixes in order to protect themselves as much as possible, particularly as five-year products are so favourably priced compared with their two-year equivalents.”  

Leon Diamond, CEO at Livemore, said: “Long-term fixed rate mortgages are the sensible way for people to go in this rising rate environment and many people are now considering fixing for 10 years. But there are also 20-year fixed rate and fixed for life options, which can give peace of mind knowing that your monthly repayment will never go up.” 


‘Alarm bells’ for consumer credit borrowing 

The BoE statistics also revealed that consumer credit borrowing, including credit cards and unsecured loans, exceeded pre-pandemic levels for the third month running. 

Individuals borrowed an additional £1.4bn in consumer credit in April, on net, following £1.3bn of borrowing in March. This is compared to a £1bn average in the 12 months to February 2020.  

However, borrowing levels were down on the £2bn recorded in February. 

In April, consumer credit borrowing was split between £700m on credit cards and £700m through other forms of credit such as car dealership finance and personal loans. 

Rob Peters, director of Simple Fast Mortgage, said: “It’s never a good idea to cover the cost of living with debt such as credit cards or loans, as this creates a downward spiral of debt reliance which can only create further problems.  

“That said, we’ve seen some borrowers with good credit ratings and strong affordability being turned down for additional borrowing by their existing mortgage lender. These borrowers have been forced to look at higher cost personal finance options such as unsecured loans in order to raise money needed. This indicates a lack of appetite by some mortgage lenders to allow borrowers to raise additional monies, at high loan to value ratios.” 

Andrew Montlake, managing director of Coreco, said: “This latest rise in consumer credit will trigger even more alarm bells at the Bank of England. It shows the economic storm clouds are getting darker by the day. People can take out credit and loans if they are confident, but in this case it’s almost certainly because they are seeking extra cash to cover their bills and put food on their tables.” 

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