Borrowing on new mortgages rose by £3.2 billion in May, as buyers and sellers ‘stalled’ decided to crash amid changing market conditions.
Net borrowing of new mortgage debt rose to £7.4 billion in May, according to money and credit data from the Bank of England, up from £4.2 billion in April.
This was also well above the pre-pandemic net average for the 12 months to February 2020, which was £4.3 billion.
Mortgage chaos: New borrowing rose by £3.2 billion in May, according to the Bank of England, as sellers decided to put their homes on the market ahead of an expected market peak
The rise in borrowing came despite a cost-of-living crisis, as inflation drove up prices for necessities such as food and fuel, as well as a hike in mortgage rates through a hike in the Bank of England’s base rate.
Experts said buyers were seeking to secure their purchases before mortgage rates increased.
Andrew Montlake, managing director of UK-wide mortgage brokerage Coreco, said: ‘May was an insanely busy month for mortgages, and this data bears that out.
Many people want to buy before prices go up further, and the “fear of missing out” on currently available prices motivates many people to take action.
Others said there were more homes available for purchase because sellers sensed the market peak, and wanted to sell their homes before prices started to drop.
Borrowing boom: Net borrowing of new mortgage debt rose to £7.4 billion in May, the Bank of England said, from £4.2 billion in April
Tom Bell, UK head of residential research at estate agent Knight Frank, said: ‘There are a couple of reasons why demand for mortgages has stabilized although there are cost-of-living pressures that will get worse before they get better.
First, buyers are faced with more choices as an increasing number of potential sellers feel prices may be peaking.
“Second, with lenders withdrawing their cheap products on a weekly basis, there is an added urgency to act sooner rather than later.”
The “effective” interest rate – the actual interest rate paid – on newly taken out mortgages rose 13 basis points to 1.95 percent in May, according to Bank of England data.
The inventory-based mortgage rate rose 2 basis points to 2.07 percent.
Total lending, which also includes refinancing, rose slightly to £28.4 billion in May from £26.7 billion in April, while total payments rose slightly to £21.8 billion in May from £21.6 billion in April.
The number of mortgages approved for home purchases rose to 66,200 in May from 66,100 in April.
This was down from the pre-pandemic 12-month average through February 2020 of 66,700.
Remortgage approvals were unchanged at 47,800 in May, down from the pre-pandemic 12-month average through February 2020 of 49,500 — but those stats only reflect those who remortgage with a different lender and the number is more likely to enter into a new deal with the lender. Present. much higher.
Andrew Burrell, chief real estate economist at Capital Economics, said: “Mortgage approvals remained relatively weak in May, supporting our view that higher interest rates are now starting to dampen activity.
“As mortgage rates are set to rise further over the next year, this means that demand and lending will remain weak in the months ahead.”
Credit reductions: BofE data also showed that people borrowed less on credit cards and personal loans in May than they did in April
Low rate borrowing credit cards and loans
BofE data showed that the amount borrowed on credit cards and personal loans fell by £600m in May compared to April.
Individuals borrowed an extra £0.8bn in consumer credit in May, down from the £1.4bn of new borrowing in April.
This was just below the pre-pandemic 12-month average to February 2020 of £1 billion.
Additional consumer credit borrowing in May was split between £0.4 billion on credit cards, and £0.4 billion on other forms of consumer credit such as car dealership financing and personal loans.
Interest rates on new personal loans to individuals fell by 3 basis points to 6.49 percent in May, 40 basis points below the level of February 2020.
The effective rate on interest-bearing credit cards rose by 30 basis points to 18.38 percent in May from 18.08 percent in April, and is 18 basis points below the February 2020 level.
The effective overdraft interest rate in May rose by 15 basis points to 20.22 per cent.
Households save less because the cost of living bites
Households deposited a total of £5.4bn in savings with banks and building societies in May, compared to £5.7bn in April, according to BofE.
About £0.3 billion was put into national savings and investment accounts, compared to £0.6 billion 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 before the pandemic to February 2020.
It is crucial that savers consider fixed price offers and avoid spending beyond their means if possible
Paul Heywood, chief data and analytics officer at Equifax UK credit union, said: ‘As the cost-of-living crisis further strains household finances, savings and disposable incomes are eroding, causing many people to pay less debt.
However, with economists anticipating that the base rate may need to rise, with some predicting as high as 3 percent, to combat spiraling inflation, such higher increases will be felt across the country as it becomes much more expensive to pay off debt. .
“With our research indicating 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.”
Best mortgage rates and how to find them
Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.
If you are looking to buy your first home, move or remortgage, or are a buy-to-let owner, it is important to get good 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 an independent, no-fee L&C broker.
The Mortgage Calculator backed by L&C allows you to filter deals to see which ones fit your home value and deposit level.
You can also compare different durations of mortgage rates, from two-year fixes, to five-year fixes and ten-year fixes, displaying monthly and total costs.
Use the tool at the link below to compare the best deals, factoring in fees and prices. You can also start an online application on your own time and save it as you move forward.
> Compare the best mortgage deals available now
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This 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 influence our editorial independence.