Mortgage approvals rise for the first time in four months
Official figures from the Bank of England showed that new mortgages rose by 2,400 to 63,000 in May, up from 60,600 recorded in April and beating expectations of about 59,000. It is the first time since January that overall approvals have risen on the previous month, after the sector was disrupted by changes to the stamp duty threshold which came into force in April.
The total volume of mortgage lending also rose sharply by £2.8 billion between April and May, when credit contracted by £800 million in anticipation of the higher stamp duty. Remortgage approvals also posted the highest figures since February 2024 at 41,500.
The effective interest rate paid on the average new mortgage has been falling over the past year, and declined again in May from an average of 4.49 per cent to 4.47 per cent month-on-month. Market lending rates for two and five-year home loans have also slumped to lows last recorded in 2022.
The Bank's monetary policy committee cut interest rates from 4.5 per cent to 4.25 per cent on May 8 and is expected to do so again in August, according to financial market projections. Investors are betting on the base rate ending the year at around 3.75 per cent — the lowest since February 2023.
'Now that volatility has started to ease the fundamental drivers of mortgage demand should reassert themselves,' Matt Swannell, chief economic adviser to the EY Item Club, said. 'Mortgage rates are now much lower than they have been for most of the past three years, while nominal earnings growth has been strong. Together, these forces mean affordability is much less stretched than it has been in the recent past.'
May's figures are close to the average of 66,000 monthly mortgage approvals recorded before the pandemic in 2019, when average mortgage rates were far cheaper at about 2 per cent. Approvals are also running 2.5 per cent higher than in May 2024.
• UK house prices rise after stamp duty 'blip'
Anthony Codling at RBC Capital Markets said the contraction in new mortgages in April was proving to be a 'blip not a trend'.
'Housing market activity is broadly in line with the five-year average, comforting news for homebuyers and sellers. However, the government will need to see a more active housing market if it is to get close to its five-year target of 1.5 million new homes,' he said.
The resilient housing market is unlikely to translate into strong economic growth in the second quarter, with economists expecting growth to flatline after a posting a 0.7 per cent expansion in the first three months of the year.
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