Lending for new mortgages rose by £3.2bn in May as ‘procrastinating’ buyers and sellers decided to take the plunge amid changing market conditions.
Net borrowing on new mortgage debt rose to £7.4bn in May, according to Bank of England money and credit data, up from £4.2bn in April.
This was also well above the pre-pandemic net average for the 12 months to February 2020, which stood at £4.3bn.
Mortgage chaos: New borrowing rose by £3.2bn in May, according to the BofE, as sellers decided to put their homes on the market ahead of the market’s perceived peak.
The borrowing spike came despite the cost-of-living crisis, in which inflation is driving up the price of staples like food and fuel, as well as rising mortgage rates through hikes of the Bank of England base rate.
Experts said buyers were looking to secure purchases before mortgage rates rose further.
Andrew Montlake, managing director of UK-wide mortgage broker Coreco, said: ‘May was a crazy busy month on the mortgage front and this data underscores that.
Many people want to buy before rates rise further and the “fear of missing out” on currently available rates is incentivizing many people to take action.
Others said more homes were available to buy because sellers sensed the spike in the market and wanted to sell their homes before prices started to drop.
Lending boom: Net borrowing from new mortgage debt rose to £7.4bn in May, the BofE said, up from £4.2bn in April.
Tom Bill, head of UK residential research at estate agency Knight Frank, said: “There are two reasons why demand for mortgages is holding steady despite the presence of a cost-of-living contraction that will get worse before it gets better. “.
“First, buyers are faced with more choice as a growing number of potential sellers perceive that prices may be peaking.
“Second, with lenders pulling their cheapest products on a weekly basis, there is added urgency to act sooner rather than later.”
The ‘effective’ interest rate (the actual interest rate paid) on newly issued mortgages rose 13 basis points to 1.95 percent in May, according to BofE data.
The rate on the outstanding mortgage stock rose 2 basis points to 2.07 percent.
Gross loans, which also include remortgages, increased slightly to £28.4bn in May from £26.7bn in April, while gross repayments increased slightly to £21.8bn in May from £21.6bn in April.
The number of mortgages approved for home purchases increased to 66,200 in May, from 66,100 in April.
This was below the 12-month pre-pandemic average through February 2020 of 66,700.
Approvals to remortgage were unchanged at 47,800 in May, below the 12-month pre-pandemic average through February 2020 of 49,500, but these statistics only reflect those remortgaging with a different lender and is number will likely enter into a new agreement with your existing lender. much higher.
Andrew Burrell, chief property economist at Capital Economics, said: “Mortgage approvals remained relatively weak in May, which supports our view that higher interest rates are now beginning to dampen activity.”
“With mortgage rates set to rise further over the next year, this means demand and lending will remain weak for months to come.”
Credit haircuts: The BofE data also showed that people borrowed less with credit cards and personal loans in May than in April.
Loan and credit card loan falls
BofE data showed that the amount lent on credit cards and personal loans decreased by £600m in May compared to April.
People borrowed an additional £800m of consumer credit in May, less than the £1.4bn of new borrowing in April.
This was slightly below the pre-pandemic 12-month average to February 2020 of £1bn.
Additional consumer credit borrowing in May was split between £0.4bn in credit cards and £0.4bn in other forms of consumer credit, such as car dealer financing and personal loans.
Interest rates on new personal loans to individuals fell 3 basis points to 6.49% in May, 40 basis points below the February 2020 level.
The effective rate on credit cards that charge interest increased 30 basis points to 18.38% in May from 18.08% in April, and is 18 basis points below the February 2020 level.
The effective interest rate on overdrafts that charge interest in May increased by 15 basis points to 20.22 percent.
Households save less in the face of the cost of living crisis
Households deposited a total of £5.4bn in savings with banks and building societies in May, compared with £5.7bn in April, according to the BofE.
Around £300m was placed in national savings and investment accounts, up from £600m in April.
Combined deposits with banks, building societies and NS&I accounts in May were £5.7bn, down from £6.3bn in April, but in line with the average of £5.6bn over the 12-month period leading up to the pandemic until February 2020.
It is critical that savers consider fixed-rate offers and avoid spending beyond their means if possible.
Paul Heywood, director of data and analysis at credit union Equifax UK, said: “As the cost of living crisis puts more pressure on household finances, savings and disposable income are eroding, which makes many people pay less debt.
“However, with economists speculating that the base rate may need to rise, with some predicting as much as 3 percent, to combat skyrocketing inflation, people across the country will feel just as high rate increases as their bill payments go up. debt becomes much more expensive. .
“As our research indicates that more people in the UK are becoming financially vulnerable, it is critical that savers consider fixed rate offers and avoid spending beyond their means if possible.”
The best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.
If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.
Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.
You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.
Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.
> Compare the best mortgage deals available now
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.