Just 9,300 new mortgages were approved across the UK in May, as the COVID-19 pandemic pushed the housing market to near standstill.
Statistics from the Bank of England, published on Monday, show new mortgage approvals hit an all-time low in May.
New mortgage approvals collapsed by 90% compared to pre-pandemic levels and represent just a third of the lowest level seen during the 2008 financial crisis. May’s mortgage approvals were also below economists’ forecasts of 25,000 new approvals.
“The Bank of England data reveals the unprecedented impact of the property market shut down when many surveyors were unable to visit properties to conduct valuations in-person,” said Hina Bhudia, a partner at mortgage broker Knight Frank Finance.
“Leading indicators suggest lending has been picking up since May, but it's clear there is still a long way to go before many borrowers experience anything resembling pre-pandemic conditions.”
The government effectively froze the housing market in March when a strict lockdown was ordered across the UK. Restrictions were eased for house viewings in mid-May. Property websites like Zoopla have reported surging demand since.
However, experts warned that pent up demand may not be met with increased supply, as banks are increasingly cautious about lending.
“A two-tier mortgage market has emerged in recent weeks as lenders have become more averse to risk, and have largely withdrawn from higher loan-to-value lending ahead of the wind up of government support schemes this autumn,” Bhudia said.
“This means the market remains particularly challenging for first-time-buyers, the self-employed, or anybody that relies heavily on commission or bonuses to top up their income.”
Remortgage approvals also fell in May but less sharply than new approvals. Remortgage approvals were 42% below pre-pandemic levels.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “We still expect mortgage approvals to finish the year down 10% year-over-year and look for a 5% peak-to-trough fall in house prices.”
The Bank of England’s data also showed a continued rise in household savings across the UK and more debt being paid off. Household deposits rose by a record £25.6bn ($31.6bn) last month, while people repaid £4.6bn in credit card debt and personal loans.
Gross consumer borrowing rose slightly to £13.6bn but remains 3% below where it was this time last year, the lowest annual growth rate since records began in 1994.