UK homeowners pay down mortgage debt for second month running

BRITONS made a net repayment of mortgage debt for a second month in May as homeowners braced for higher borrowing costs.

Households collectively paid back almost £100 million (S$171 million) more than they borrowed following a net repayment of £1.5 billion in April, the Bank of England (BOE) said on Thursday (Jun 29). It was the first back-to-back reduction in secured lending in records going back to 1993.

Mortgage approvals for house purchase, an indicator of future borrowing, rose slightly to 50,524. However, approvals remain well below pre-pandemic levels, in a sign of the pressure on the housing market. The effective rate on new mortgages rose 10 basis points to 4.56 per cent in May.

The figures reflect the strains in the mortgage market triggered by speculation that the BOE will have to keep raising interest to tame an inflation rate that remains stubbornly close to double digits. 

Lenders are pushing up the cost of the loans, pulling deals off the market and tightening borrowing criteria, making it harder for first-time buyers to get on the housing ladder and adding hundreds of pounds to the monthly mortgage bills of existing mortgagors. 

The prospects for the housing market got even worse this month after another shock inflation reading left investors convinced that BOE will have to raise rates to 6.25 per cent by February, the highest level since 1999. There are growing fears the impact on families already struggling with food and energy bills could tip the economy into recession this year. BLOOMBERG