Interest rate on newly drawn mortgages rose by 10bps
Net mortgage approvals for house purchases increased from 49,000 in April to 50,500 in May, data published by the Bank of England (BoE) has shown.
Net approvals – an indicator of future borrowing – rebounded after a decrease in April, following successive rises in February and March.
Approvals for remortgaging, which only capture remortgaging with a different lender, also saw a rise from 32,500 in April to 33,600 in May.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages rose by 10 basis points (bps) to 4.56% in May. The rate on the outstanding stock of mortgages also increased by 7bps, from 2.75% in April to 2.82% in May.
The central bank’s latest Money and Credit report also showed that individuals repaid, on net, £0.1 billion of mortgage debt in May. This followed the record £1.5 billion net repayments in April, excluding the period since the onset of the COVID-19 pandemic.
“While today’s figures show an uptick in mortgage approvals, this does not take into account the Bank of England’s recent 0.5% rate rise in its bid to ease inflation,” commented Steve Seal, chief executive at Bluestone Mortgages. “However, as inflation continues at higher-than-expected levels, so too will the financial pain for those looking to take their first or next steps onto the property ladder.
“With the average two-year fix now above 6% and the cost-of-living likely to remain high for the foreseeable future, affordability is the key challenge facing consumers.
Mark Harris, chief executive of mortgage broker SPF Private Clients, agreed with Seal, saying that although mortgage approvals ticked up again in May, buyers were concerned as to what was going on in the wider economy and what they can afford.
“The average rate on new mortgages continued to rise in May, increasing by 10 basis points to 4.56%,” Harris pointed out. “The worst of the pain may not be over, with further rate rises possible, as inflation proves to be more stubborn than the Bank of England previously forecast.
“Swap rates, which underpin the pricing of fixed rate mortgages, are still edging upwards, with lenders pulling deals and repricing higher. This suggests we will see some volatility in the market for a while to come.”
Emma Cox, managing director of real estate at Shawbrook, however, said that buyer confidence had remained robust despite the challenges facing the property market.
“Those looking to purchase properties will be trying to act quickly to offset the risk of further house prices increases, and homeowners due to remortgage will want to secure rates swiftly to protect themselves from further interest rate rises,” she added.
Jonathan Samuels, chief executive at Octane Capital, remarked that current market conditions were “erratic at best.”
“We’ve seen unpredictable monthly movement with regard to the level of mortgages being approved so far this year,” Samuels said. “This is largely due to the Bank of England’s decision to keep increasing interest rates, with buyers having to reassess their position in the market, only to return to find the goal posts have moved once again.
“As a result, the number of approvals being seen from one month to the next is up and down like a yo-yo, and this demonstrates the tricky landscape buyers are attempting to negotiate in order to climb the ladder.”
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