Industry experts react to BoE report
Both mortgage approvals and net borrowing of mortgage debt by individuals decreased in April, the latest Money and Credit statistics released on Tuesday by the Bank of England (BoE) has shown.
Net borrowing was £4.1 billion in April, down from £6.4 billion in March, while mortgage approvals for house purchases also fell to 66,000 in April from 69,500 in March.
BoE said both measures were slightly below their 12-month pre-pandemic averages up to February 2020 of 66,700 for mortgage approvals and £4.3 billion for net borrowing of mortgage debt.
Gross lending rose slightly to £26.5 billion in April from £26.2 billion in March, while gross repayments increased to £21.5 billion in April from £20.0 billion in March.
Approvals for remortgaging, which only capture remortgaging with a different lender, decreased to 47,800 in April.
The report further disclosed that the ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by nine basis points to 1.82% in April. The rate on the outstanding stock of mortgages ticked up one basis point to 2.05% in April.
Read more: Broker sheds light on rapidly changing UK mortgage landscape.
Commenting on the latest BoE statistics, Andrew Montlake, managing director at mortgage broker Coreco, said the drop-off in mortgage approvals is surprising as April and May have been exceptionally busy, although the combination of weaker borrower sentiment and lenders tightening their affordability is expected to feed through in the months ahead.
“Remortgages, contrary to what this data suggests, are going through the roof as people seek to lock into the lowest rates available before they rise further. 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,” Montlake noted.
Ross Boyd, founder of mortgage comparison platform Dashly.com, agreed that the drop-off in remortgaging does not tally with the significant remortgage activity that is taking place, saying the data “will leave a lot of brokers scratching their heads.”
“The fall in mortgage approvals likely reflects deteriorating buyer sentiment and tightening affordability checks. Buying a new home right now or upsizing is something a lot of people have marked as low priority,” Boyd added.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, commented that mortgage approvals are always a good lead indicator of housing market direction.
“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,” Leaf noted.
Steve Seal, chief executive at Bluestone Mortgages, said that despite a dip in mortgage lending due to the current inflationary environment, it’s clear that the homeownership dream lives on.
Read more: What’s driving the UK's mortgage market?
“However, as the cost-of-living crisis continues to put a squeeze on household and personal finances, we expect to see a growing cohort of customers locked out of the mainstream mortgage market,” he pointed out.
Leon Diamond, chief executive at LiveMore, said that while we are starting to see a slowdown in what has been a busy housing market over the past couple of years, there is still demand for housing, and borrowers will want to secure their new home and mortgage before rates go up even higher.
“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,” he said.
Mark Harris, chief executive of mortgage broker SPF Private Clients, remarked that 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.
“Brokers need to be on the front foot more than ever before and be proactive to help their clients in these disruptive times. There are always solutions which can help and it’s important to provide regular, up to date, expert advice to continually reach best outcomes for clients,” Paul McGerrigan, chief executive at online broker Loan.co.uk, added.
