Borrowing unaffected by increasing rates
Despite rising interest rates, net mortgage approvals for house purchases – an indicator of future borrowing – saw an increase from 51,100 in May to 54,700 in June, according to data published by the Bank of England (BoE) on Monday.
Approvals for remortgaging, which only capture remortgaging with a different lender, rose from 34,100 to 39,100 during the same period.
Net borrowing of mortgage debt by individuals increased to £0.1 billion in June, after net repayments of £0.1 billion in May and record high net repayments of £1.1 billion in April.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages continued to rise, increasing by a further seven basis points to 4.63% in June.
The BoE’s latest Money and Credit report also showed that gross lending increased for the second consecutive month, from £19 billion in May to £20 billion in June. Similarly, gross repayments rose from £19.0 billion in May to £19.8 billion in June.
A predicted housing market slowdown due to surging mortgage rates after many lenders temporarily pulled out of deals to launch repriced products did not materialise as the BoE figures have shown.
“Mortgage approvals ticked up again in June to the highest level seen since October, although buyers remain concerned as to what’s going on in the wider economy and what they can afford,” Mark Harris, chief executive of mortgage broker SPF Private Clients, commented. “The average rate on new mortgages continued to rise in June.
“The worst of the pain may not be over with the Bank of England poised to raise the base rate again later this week. Swap rates, which underpin the pricing of fixed-rate mortgages, and have been exceptionally volatile in recent weeks, have settled down since the encouraging dip in inflation. A number of lenders, including HSBC and Barclays, have reduced their fixed rates, and borrowers will be hoping other lenders follow suit in the coming days and weeks.”
Graham Cox, founder of Bristol-based broker SelfEmployedMortgageHub.com, pointed out that debt continues to be an issue with a lot of mortgage borrowers, and this is evident in the BoE data.
“It’s not uncommon for a couple to have £10,000 to £20,000 of debt between them, which can severely dent their maximum borrowing capacity,” he said. “Most economists predict the Bank of England will increase the base rate by 0.25% this week.
“However, I don’t see it having a significant bearing on mortgage rates as they’ve already risen so much over the past couple of months.”
According to Adam Oldfield, chief revenue officer at Phoebus Software, the latest figures from the Bank of England tell two distinct stories.
“One that shows that no matter what the naysayers believe there is still an appetite to purchase property,” he said. “The other story is perhaps what we have been expecting to see, that consumers are starting to rely more on credit as the rising cost-of-living bites.
“On this Consumer Duty Day, when all financial services come under the spotlight, this level of consumer borrowing is the biggest indication to date that consumers are looking to spread the cost of their spending.
“It is an opportunity for everyone in our industry to show that everything we do is with our clients’ very best interests at heart. For lenders especially, this is a time to ensure that all the right systems and people are in place to ensure Consumer Duty is at the forefront of everything they do going forward.”
Steve Seal, chief executive at Bluestone Mortgages, meanwhile, remarked that while it was positive to see a slight uptick in the number of mortgage approvals, the worse could be yet to come.
“We are still facing strong economic headwinds, and as lenders continue to increase rates and pull deals, affordability will remain a key challenge for would-be and existing borrowers,” he said.
“For those who are concerned about the current environment and how it will impact their homeownership goals, now more than ever is the time to seek advice from a mortgage broker.”
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