The value of UK mortgage approvals for home purchases fell to the lowest level in more than 20 years in May, according to data from the Bank of England, as more cautious lenders restricted products with higher loan-to-value (LTV) ratios.
It is yet another sign of the slowdown in housing market activity in the wake of the pandemic. House prices declined by 0.1 per cent in June compared with the same time the prior year, according to the Nationwide House Price Index, the first annual decline since 2012.
Around £7.1bn in mortgages for new home purchases were approved in May, down almost a quarter on April, while the number of approvals fell to a record low of 9,300. That was almost 90 per cent below the February level and around a third of the trough during the financial crisis in 2008.
The value of approvals for remortgages, which include remortgaging with a different lender only, held-up better, falling by 12 per cent on the prior month to £5.3bn and 42 per cent compared with February’s figure.
On a net basis, actual mortgage borrowing was an additional £1.2bn, slightly higher than the figure in April but weak compared to an average of £4.1bn in the six months to February 2020.
The good news for lenders was that the monthly increase reflected more new borrowing by households, rather than lower repayments, although the extent of loans turning sour will become more apparent in the coming months.
The total number of available mortgage products has fallen by almost half since January, according to Moneyfacts, and is the lowest level since these records began in 2011. The decline was accentuated by the reduction in products at higher LTVs, with 95 and 90 per cent LTV mortgages falling by 96 per cent and 90 per cent, respectively, since the start of the year.
The decline in approvals, which is a more forward-looking indicator than the actual amount borrowed, signals a further deterioration in housing market transaction volumes.
The outlook for pricing will partially depend on the extent to which there is a rise in homeowners forced to sell their properties. The cost of remortgage payments remains low - rates on outstanding floating-rate mortgages fell by a further 14 basis points on the month to 2.25 per cent and is the lowest since the records began in 2016.
