Mortgage approvals rose at the beginning of the year, hitting their highest levels since the mini-budget as lenders reduced rates on new deals in anticipation of interest rate cuts
The recovery in the mortgage market at the turn of the year continued to lose momentum in May, new figures reveal, as uncertainty over the timing of interest rate cuts weighed on activity.
Figures from the BoE showed that just below 60,000 mortgages were approved in May, down from 60,800 in April and just more than 61,000 in March. Mortgage approvals are an indicator of future mortgage lending.
Approvals for remortgaging also dropped marginally in May, dropping to 29,600 from 29,900 in April.
Mortgage approvals increased at the beginning of the year, hitting their highest levels since the mini-budget as lenders reduced rates on new deals in anticipation of interest rate cuts.
However, since then, markets have pared back bets on when interest rates will be lowered, forcing mortgage rates higher. According to Bank data, the ‘effective’ interest rate on newly drawn mortgages increased 5 bps to 4.79% in May.
The strong recovery in mortgage demand seen in the early part of the year has faded of late, in keeping with the increase in quoted mortgage rates over the last few months, according to Peter Arnold, EY UK chief economist.
Tom Cuppello, director of risk at Broadstone, said the housing market’s recovery remained “precarious” amid uncertainty over the timing of interest rate cuts.
Economists think there is a nearly 50% probability that the Bank will reduce rates in August, although it depends on the next batch of inflation figures.
The Bank’s money and credit figures also pointed to a strong rise in consumer borrowing in May, with borrowing jumping to £1.5 billion from £800 million in April. This was largely driven by a rise in borrowing on credit credits.