British lenders approved more mortgages than expected in June and net unsecured lending to consumers shot up by the most in over five years, despite rising interest rates, Bank of England data showed.
Banks and building societies approved 54,662 mortgages in June, the most since October 2022 when the housing market faltered after a surge in bond yields caused by then-Prime Minister Liz Truss' tax cut plans, Bank of England data showed on Monday. A Reuters poll of economists had pointed to approvals of 49,000, after 51,143 mortgages were approved in May.
Despite June's increase, the housing market is likely to weaken further in the months ahead thanks to much higher borrowing rates on mortgages that reflect past interest rate hikes from the BoE, as well as expectations for future ones. "The rise in mortgage approvals probably represents a scramble to secure a deal before cheaper mortgage products were pulled from the market in the wake of the surge in interest rate expectations at the end of May," said Thomas Pugh, economist at accountants RSM UK.
Monthly mortgage approvals are still running lower than the 2010-2019 average of around 60,000.
RSM forecast a 10% peak-to-trough fall in house prices. According to official data, house prices in May were just 2% lower than their peak in September 2022. The value of net mortgage lending for the second quarter as a whole fell compared with the first quarter - the first quarterly contraction since records began in 1987.
"Looking ahead, growth in households' real disposable incomes will be weighed down by mortgage refinancing," said Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics.
The BoE reported a 1.661 billion pound ($2.13 billion) monthly increase in net consumer lending June, the largest such increase since April 2018. The increase was driven mostly by the "other" lending category, which comprises personal loans and car finance deals, the latter potentially boosted by a jump in new car sales in June.
UK property transactions – HMRC unveils the latest
Industry experts discuss the impact of the latest figures
HMRC has recorded the lowest level of UK property sales for the month of June since 2020. UK residential transactions totalled 94,690 in June, down 9% when compared with last year, however 28% higher than the previous month, the latest HMRC Property Transaction data showed. HMRC also reported that the number of non-residential transactions was 85,870 in June 2023, 15% lower than the previous year, however 6% higher than the previous month.
Vikki Jefferies, propositions director at PRIMIS, said "the fact that transaction figures remain above pre-pandemic levels will hopefully bring some confidence to the market. While higher borrowing costs and the ongoing cost-of-living crisis clearly continue to weigh on the market, brokers are still seeing a steady stream of activity as first-time buyers and home-movers try to overcome affordability challenges."
Jefferies has also seen increased refinancing activity, as borrowers look to secure the best deal they can in light of the news that interest rates may increase further this year. In the same vein, she said that "potential second time purchasers will be considering all of their options. For example, they may consider taking out a further advance, while keeping the existing portion of their mortgage at the old rate.”
This could, Jefferies believes, be a more suitable option than paying an early repayment charge and looking for another mortgage.
“Given there is plenty of activity in the pipeline, brokers should look to tap into sources of training and support, such as mortgage networks, which will allow them to best support consumers during this challenging period,” she said.
Terry Woodley, managing director of development finance at Shawbrook, said "while the month-on-month increase may seem like good news, and typical of the often-busier summer months, he believes the data does not tell the whole story, and all the signs are pointing towards a slowdown in the market as we see out 2023. Property developers will be concerned about reduced demand and longer selling periods, which could affect their ability to cover construction costs, repay loans, or invest in new projects. Access to funding with a specialist that can offer consistency, flexibility and certainty, will be a key priority. Seasoned developers will be monitoring the trends closely and re-evaluating their business strategies to make the most of new opportunities. They may need to focus on different market segments, locations, or property types to adapt to changing market conditions.”
Kay Westgarth, director of sales at Standard Life Home Finance, said "with inflation hitting its lowest level in a year, the Bank of England is now under less pressure to increase interest rates. As such, she expects to see an easing of the current tension currently at play in the housing market. Although a correction may still be on the cards, this should be less severe than feared, and transaction numbers should start to rise as consumer confidence starts to build. However, even as conditions continue to stabilise, the cost-of-living crisis will still remain a major hurdle for many homeowners across the UK, especially if they are due to remortgage in the short-term. There are no simple answers but as a homeowner, she said the focus should be on understanding all your options, and ensuring that you make the most sustainable choice for your individual circumstances. For some older borrowers, this will be choosing to take out a retirement interest-only mortgage or downsizing, while others may find that equity release is right for them.”