The number of mortgage approvals made to home buyers slumped to a record low in April as the housing market was held at a near-standstill, Bank of England figures show.
Some 15,848 mortgage approvals for house purchase were recorded – around 80% below February levels before coronavirus lockdown measures were imposed – the Bank’s Money and Credit report revealed.
This was around half the number of approvals taking place in the trough during the financial crisis, and the lowest since the figures started in 1993, the report said.
The figures were released as Nationwide Building Society’s latest house price index showed that more than £4,000 was wiped off average property values in May, marking the biggest monthly fall in 11 years.
Nationwide said that across the UK, the average house price in May was £218,902 – £4,013 less than a record high of £222,915 recorded in April.
Approvals for re-mortgaging also fell in April, the Bank of England said, to 34,400, 34% lower than in February.
The Bank of England report said: “Weakness in the housing market associated with Covid-19 was reflected in weak mortgage market activity in April.”
Andrew Montlake, managing director at mortgage broker Coreco, said: “Unsurprisingly, mortgage approvals went off a cliff in April as lockdown put the economy on hold.
“Since the lockdown was eased in mid-May we have seen a sharp increase in inquiries, reflecting the significant pent-up demand in the market right now.
“People had a lot of time to reflect during lockdown and many have now decided that they are keen to move to different areas of the country.
“We are seeing a sharp rise in the number of people looking to move to more rural areas given the perceived reduced risk from further potential surges in Covid-19.
“There is definitely more caution among surveyors but for now valuations are holding up fairly well given the strength of demand.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said he expected May’s data to show an improvement, adding: “With lockdown easing and surveyors able to return to physical valuations, lenders are back with higher loan-to-values, while rates are ultra-competitive.”
The Bank of England report also showed that households made a net repayment of £7.4 billion in consumer credit in April – the largest net repayment since the series started.
The majority (£5 billion) of net consumer credit repayments were on credit cards, while £2.4 billion of other loans were also repaid.
The report said the “extremely weak” net flows of consumer credit meant that the annual growth rate in this type of borrowing fell below zero in April, to minus 0.4% – the weakest growth since August 2012.
With lenders offering £500 interest-free overdraft buffers to borrowers whose finances have been hit by coronavirus, the “all-in” cost of overdraft borrowing fell sharply in April, as lenders removed fees and held rates low.
The typical rate on overdrafts (including fees) was 10.93% in April, around 15 percentage points lower than in March.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics said spending and borrowing would rebound in June, as shops re-open their doors.
He continued: “But we doubt that households will spend the cash they have accumulated during the lockdown soon, given heightened job insecurity and lingering concerns about catching the virus.
“Mortgage approvals likely will snap back too, now that in-person property viewings are allowed. But with mortgage rates having fallen only marginally so far this year, unemployment set to rise and banks intending to restrict the supply of secured credit, we expect mortgage lending to remain at least 10% below its pre-virus peak in the second half of this year.”
The report also said private sector businesses raised a total of £16.3 billion from banks and financial markets in April, down from £31.6 billion in March.
It said: “Private sector businesses of all sizes borrowed little extra from banks in April.”