UK mortgage approvals jump, beating consensus

Mortgage approvals for house purchase were 87,500 last month, up on April’s 86,900 and above consensus expectations of 85,800. Approvals are currently below November 2020’s peak of 103,200, but above pre-February 2020 levels.

Approvals for remortgage - which are only captured when lenders are changed - rose to 34,800 from 33,400 in April.

Net mortgage borrowing was £6.6bn in May, compared to £3.0bn a month previously and a record £11.4bn in March, when people rushed to secure mortgages ahead of the expected end of the stamp duty holiday. Chancellor Rishi Sunak has since extended the tax break until September.

The latest Bank of England Money & Credit report coincided with June's Nationwide house price index, also published on Tuesday. It rose 0.7% month-on-month, or by 13.4% year-on-year.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The housing market is going full gas. House purchase mortgage approvals in May greatly exceeded their 61,300 average in the 2010s, while house prices rose at their fastest year-over-year growth rate since November 2004, according to Nationwide.

"A big correction in house prices looks unlikely: mortgage payments still absorb a much lower share of households’ incomes than in the 2000s, and households’ preferences likely have changed as a result of the pandemic."

The Money & Credit report also showed that consumers borrowed more as consumer credit than they paid off in May, for the first time since August 2020. Net borrowing was £0.3bn.

The increase in net consumer credit reflected an additional £0.4bn of "other" forms of consumer credit, the BoE said, such as car dealership finance and personal loans. Credit card lending remained weak compared to pre-February 2020 levels, with a net repayment of £0.1bn.

Laith Khalaf, financial analyst at AJ Bell, said: "Latest trends in consumer spending show that old habits die hard, unless there’s a lockdown in force. Borrowing is on the rise, and savings are falling back, as the lifting of social restrictions has prompted consumers to reach for their wallets.

"After a long period of hibernation, it’s natural consumers are enjoying a bit of the old normal, and many have built up a sizeable war chest of savings. Unfortunately, those savings are earning next to nothing in the bank, and now inflation is on the rise, they’re actually losing their buying power more quickly."

Martin Beck, senior economic advisor to the EY Item Club, said: "Though the lifting of remaining restrictions has been postponed until 19 July, [we do] not expect this to represent much of a hindrance to the rebound in consumer demand.

"Housing market activity has cooled relative to the start of the year, but mortgage approvals were still well ahead of the 2010-2019 average. May’s total is likely to have been boosted by buyers seeking to complete before 30 June, before which no stamp duty is payable on the first £500,000 of the purchase price.

"As the stimulus measure is gradually phased out, demand should soften. But the improved economic outlook, particularly the prospect of a lower peak in unemployment, means the odds of a significant correction in the housing market looks small."