Mortgage lending plunges 36% in a month as inflation fears start to drag on UK property sales
Net borrowing of mortgage debt by individuals decreased to £4.1bn in April, down from £6.4bn in March, the Bank of England has revealed . Mortgage approvals for house purchases also decreased to 66,000 in April from 69,500 in March – which indicates borrowing is set to fall further. Both measures are slightly below their 12-month pre-pandemic averages up to February 2020.
Adrian Lowery, financial analyst at DIY investing platform Bestinvest, says that the monthly decline in net borrowing is a startling 36%, although this data set has been very volatile recently.
“This data could be taken as the latest sign that nervousness over inflation and household finances is starting to drag on what has been an overheated sellers’ property market.
“Online portal Zoopla revealed this week that one in 20 listed properties reduced their asking price by 5% or more in April to mid-May, more than in previous months. It added that buyer demand remains high but there are now signs that the market is softening, and price growth is set to slow. And it estimated that the average price reduction across the UK is 9%.”
On mortgage deals, Lowery says lenders have been pushing up mortgage rates this year following four base rate increases by the Bank of England since December last year. The BoE data revealed that the “effective” interest rate – the actual interest rate paid – on newly drawn mortgages increased by 9 basis points to 1.82% in April.
“Further hikes to the Bank Rate are expected in coming months as the Bank of England seeks to rein in soaring inflation. And fears of further mortgage rate rises have been pushing more and more homebuyers and remortgagers to look for longer-term fixed-rate mortgages.
“Five-year deals are hugely popular and demand for 10-year deals has soared over the past year. Comparison website MoneySupermarket has said that searches for ten-year fixed rate mortgages have leapt from 2.9% of all mortgage searches in May last year to 14.2% currently. The lure of the 10-year fix is also strong because they are not much more expensive than the five: 3.21% compared with 3.17%.
“While locking in at current low rates makes very good sense for many borrowers, care must be taken to get the right home loan for your circumstances. If you are intending to move in the coming few years, your fixed-rate mortgage may well be ‘portable’ to your new property, but you will be restricted to your current lender for any extra borrowing you might need if you are upsizing.
“You won’t be able to shop around or use a mortgage broker, which some people find helpful to guide them through the mortgage maze, especially if they have particular demands like wanting a greater than 25-year mortgage term or to extend a loan beyond retirement age.
“If you find you want to leave your fixed-rate deal then exit penalty charges could make it an expensive option and more than wipe out any savings made on bagging the low interest rate for a few years.”
