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Is the crash coming? – UK mortgage lending hit a record low

The UK’s housing market shows growing signs of stress, with mortgage lending collapsing to the lowest monthly level on record and property valuations falling at the fastest annual rate in almost 14 years.

Figures from the Bank of England show borrowing of mortgage debt fell sharply in April, with consumers repaying £1.4bn more than was taken out in new lending on the month. The Bank said April’s figure, continuing a decline from net zero borrowing in March, was the lowest since records began in 1993, excluding the Covid pandemic.

Separate figures from the Nationwide building society showed that house prices fell in May at an annual rate of 3.4%, representing the sharpest fall since July 2009, when the British economy was grappling with the fallout from the 2008 financial crisis.

The figures reflect the central bank’s most aggressive round of interest rate increases in decades feeding through to the property market as Threadneedle Street ramps up borrowing costs in response to stubbornly high inflation.

Martin Beck, chief economic adviser to the EY Item Club, said: “The numbers point to a housing market struggling in the face of pressure on household finances and higher mortgage rates. And rates could head up further, putting more pressure on housing market activity.”

The Bank said net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April while remortgaging approvals increased slightly from 32,200 to 32,500. It said the effective interest rate – the rate paid by consumers – on newly drawn mortgages rose by five basis points to 4.46%.

Borrowing costs have risen dramatically in recent months after 12 straight interest rate increases from the central bank, taking its key base rate from 0.1% in December 2021 to the current level of 4.5%. With Britain suffering the stickiest inflation rates in the G7 group of advanced economies, financial markets expect that the central bank could drive interest rates above 5.5% before the end of the year.

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