Figures from the Bank of England show the number of mortgage approvals for house purchase in April fell sharply to 15,800, around 80% below the February level (see graph above).
This was around half the number of approvals as the low point during the financial crisis, and the lowest since the series began in 1993.
Approvals for remortgage – which include remortgaging with a different lender only – were also down but less heavily, falling by 34% since February to 34,400.
Gross (new) mortgage borrowing fell to £14.4 billion, 38% lower than in February. Repayments on mortgage lending also fell sharply, to £13.9 billion, 26% lower than in February. This reflects a sharp fall in full repayments of loans, as well as the effect of payment holidays.
The sharper fall in gross lending than repayments means that net mortgage borrowing fell, and was only £0.3 billion in April compared to an increase of £4.3 billion in February. This was the lowest net increase since December 2011.
Interest rates remain low
Interest rates on fixed-rate mortgages, which account for 98% of new mortgage borrowing, were little changed in April.
Rates paid by individuals on floating-rate mortgage borrowing fell a little further in April, as the MPC’s March Bank Rate cuts to 0.1% continued to pass through.
The effective interest rate paid on the stock of floating-rate mortgages fell 46 basis points, to 2.39%, the lowest rate since this series began in 2016; and the rate on new floating-rate loans fell 35 basis points to 1.48%.
Comment
Commenting on the figures, Richard Pike, Phoebus Software sales and marketing director, said: “The payment holiday scheme, introduced to help borrowers during the Covid-19 breakout, had a marked effect on the mortgage repayment figures in April.
“Add to that the increased number of reduced repayments and you are looking at a significant amount of additional costs accruing. This is something that will be telling in the coming months, especially if, as is expected, the economy dips further and unemployment rises.
“It is encouraging to see that, despite a drop in household income for many, consumers are choosing to pay down their other debt as the cost of borrowing fell.
“The coronavirus crisis shocked the market to a standstill but, now that the mortgage market is moving again and there is an increase in appetite, we should start to see the approval numbers pick up again.”
John Goodall, Landbay’s CEO, commented: “It will come as a shock to nobody that the amount of mortgage lending has dropped. The shock is not that approvals for house purchases were 80% below levels in February, but that 20% of new house purchases continued to go ahead.
“The effect of mortgage holidays took full effect in this month with repayments dropping by 26%, with further sign that households are struggling with £800 million of savings withdrawn from ISA accounts in one month.
“The comparison with the credit crunch cannot be avoided as the level of net mortgage borrowing is the lowest since 2011 and May’s figures are likely to be similar, if not worse. What we hope and expect however is that the recovery following this will be much quicker than it was after the credit crunch.
“Unlike the credit crunch this is not a lender-led liquidity crisis, now the mortgage industry is a victim, from an economic point of view, as much as any other businesses are. Liquidity is still available and it is already apparent that demand for housing is still there, although people may find it harder to borrow if their circumstances have changed.
“This time the banks and financial institutions are part of the solution, along with governments and central banks, to help ease the economic burden and keep the wheels turning.”
