UK mortgage lending jump in May signals defiant housing market

UK mortgage lending rose the most in 8 months in May and approvals held up better than expected, suggesting the housing market is continuing to defy headwinds from a surge in the cost of living.

Net loan advances jumped to £7.4 billion (S$12.5 billion), the highest since September last year when there was a rush to beat a tax-cut deadline, Bank of England figures published on Friday (Jul 1) show. Lenders approved 66,163 home loans, slightly more than in April. Economists had predicted a decline to 64,000.

Property demand remained solid despite a further rise in the cost of borrowing as commercial lenders pass on a series of interest-rate increases from the BOE in recent months. The effective interest rate on new mortgages rose 13 basis points to 1.95 per cent, the highest level since June 2021.

With rates expected to keep rising to tackle the fastest inflation in 40 years, the housing market, which boomed throughout the pandemic, is expected to lose momentum. Reports from Nationwide Building Society and the online property site Zoopla have suggested a slowdown is already under way.

The big jump in mortgage lending in May reflected loans authorised some months ago, before the living standards crisis really began to bite.

However, few are predicting an outright decline in house prices, with a lack of homes for sales widely expected to continue underpinning the market. 

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The BOE figures also showed that consumers borrowed an extra £844 million of unsecured debt in May, less than economists forecast and well below the average of the previous 6 months. Credit card accounted for slightly more than half of the total.

The decline suggests households are becoming cautious about taking on debt, with surveys showing consumer confidence has slumped its lowest level in at least half a century.

Some borrowing is almost certainly by people resorting to credit cards and other loans to make ends meet.  On Wednesday, the Joseph Rowntree Foundation, a poverty campaign group, estimated that 1.3 million low-income households had used credit to cover the cost of essentials this year.