Yahoo Finance UK mortgage approvals increase in May but so do costs
Interest rate paid on newly drawn mortgages rose by 10 basis points to 4.56%
UK lenders approved more mortgages in May but those jumping on the housing ladder are paying more as the actual interest rate paid on newly drawn mortgages rose 4.56% in May.
Net approvals for house purchases increased from 49,000 in April to 50,500 in May, according to the latest Money and Credit statistics from the Bank of England.
However, the interest rate paid on newly drawn mortgages rose by 10 basis points to 4.56% in May. The rate on the outstanding stock of mortgages also increased by 7 basis points, from 2.75% in April to 2.82% in May.
Analysts at Capital Economics fear that UK mortgage lending will remain weak over the coming months, despite the rise in mortgage approvals.
They said: "The interest rate on newly drawn mortgages continued to rise by 10 basis points, from 4.46% to 4.56%.
"But this precedes most of the recent surge in mortgage rates, which climbed to just above 6.0% last week for the first time since 2007. That suggests mortgage lending and housing activity will take a big step down in June and July."
Mortgage lending in May saw net repayments down from record high in April of £1.5b to £0.1 bn of mortgage debt in May. But net approvals for house purchases inc'd from 49,000 in April to 50,500 in May & remortgaging approvals also marginally inc'd to 33,600 in May @bankofengland pic.twitter.com/dhKM4mCEAt
— Emma Fildes (@emmafildes) June 29, 2023
Steve Seal, CEO of Bluestone Mortgages, said: “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.
Read more: Buyers securing 5% to 10% discounts on house prices amid higher mortgage costs
“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.”
Some homeowners are trying to negotiate a better mortgage deal with a different bank, as approvals for remortgaging with a different lender saw a rise from 32,500 in April to 33,600 in May.
Individuals repaid, on net, £0.1bn of mortgage debt in May (meaning borrowers paid back £100m more than they borrowed), following the record £1.5bn net repayments in April.
Read more: Interest rates: When will UK’s mortgage misery end?
Jeremy Leaf, a north London estate, said: "The figures probably reflect decision-making from a few months ago at least so will not include much of the turmoil that followed the recent increase in mortgage rates. Nevertheless, we are still finding a determination to get sales done even if they are taking longer and the market is more price-sensitive. This is resulting in some heavy negotiations."
Gross lending rose from £16.4bn in April to £18.7bn in May, while gross repayments increased slightly from £18.6bn to £18.9bn after three consecutive months of decreases.
Watch: How much money do I need to buy a house?
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