Yahoo Finance Coronavirus: Mortgage approvals plummet to all-time low
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.
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“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.
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“A two-tier mortgage market has emerged in recent weeks as lenders have become more averse to risk, and have largely withdrawn from higher loan-to-value lending ahead of the wind up of government support schemes this autumn,” Bhudia said.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.
