Mortgage approvals fell to a record low in the month of May, as the Bank of England’s latest Money and Credit report found that approvals plummeted to 9,300 in May.
The bank said the fall reflected a “continued mortgage market weakness”, with new mortgage approvals plunging by 90% against the level recorded in February, and representing just a third of recorded approvals during the financial crisis in 2008.
Its latest report found that the approvals for remortgages have also fallen to 30,400, 42% lower than the level recorded in February.
On net, households borrowed an additional £1.2 bn secured on their homes, higher than the £0.0bn secured in April but “weak” compared to the average of £4.1bn in the six months to February 2020.
The Bank of England said this monthly increase reflected more new borrowing by households, rather than lower repayments.
Households also repaid more loans from banks than they took out, according to the report. It found that a £4.6bn net repayment of consumer credit “more than offset” the small increase in mortgage borrowing.
The latest Money and Credit report also found that the interest rate paid by households on new secured borrowing was “little changed” in May, while the cost of new consumer credit fell to 5.10%, nearly 2% lower than at the start of 2020.
Rates on outstanding floating-rate mortgages in May fell by a further 14 basis points to 2.25%, while the effective rate on the stock of outstanding floating-rate mortgages was 71 basis points lower than February, the lowest since the series began in 2016.
Hina Bhudia, a partner at mortgage broker Knight Frank Finance, said: “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.
“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.”
She added: “A two-tier mortgage market has emerged in recent weeks as lenders have become more averse to risk, and have largely withdrawn from higher loan-to-value lending ahead of the wind up of government support schemes this autumn.
“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.”
Paul Stockwell from Gatehouse Bank said: “The number of mortgage approvals in May is roughly a third of what they were during the worst of the financial crisis, which really puts the pandemic’s impact on the economy into perspective.
“June will be the first full month of property transactions since the UK went into lockdown and it will be these figures that will be hotly watched as a measure of how determined buyers and vendors who returned to the market have been.”