In its monthly Money and Credit report the BoE said the forward-looking indicator of mortgage approvals signalled a continuing market weakness.

Indeed, approvals fell to ‘a new series low’ of 9,300 in May, which was nearly 90% below the level in February and around a third of the decrease experienced during the financial crisis in 2008.

Remortgaging levels were also down, although the fall was not quite as steep. Approvals plunged to 30,400 which were 42% lower than in February.

Borrowing

The BoE reported households borrowed an additional £1.2 billion on their homes in May. While this was higher than the £0.0 billion in April, the Bank described it as ‘weak’ compared to the average £4.1 billion in the six months to February 2020.

It said this increase between April and May reflected the fact there had been more new borrowing by households rather than lower repayments.

Interest rates

Meanwhile, interest rates on new mortgages barely changed in May, according to the BoE. It said the rate paid on the stock of fixed-rate mortgages, which accounted for the majority of outstanding lending, showed ‘little change’.

Rates on outstanding floating-rate mortgages decreased by a further 0.14% to 2.25%. The effective rate on the stock of outstanding floating-rate mortgages was now 0.71% lower than in February, and the lowest since this series began in 2016.

Comment

Paul Stockwell of Gatehouse Bank, said the fact approvals in May were roughly a third of what they were during the worst of the financial crisis put the pandemic’s impact on the economy into perspective.

He added: “The property portals are reporting strong demand since the market re-opened in mid-May. However, time will tell whether the pent up demand will come to fruition.

“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.”

Meanwhile, Richard Pike, Phoebus Software sales and marketing director, said: “When you consider the fact that there were already mortgages in the pipeline before the lockdown in March, you can see that many of the approvals in May were due to lenders flicking the switch and starting the approval process again.

“However, when we look forward the figures in the coming months will not only reflect the market shutdown, but also an element of caution as people consider their long term finances.

Unemployment figures are already on the rise and recession is on the horizon, so confidence is going to be hit.”