Mortgage approvals for home purchases are up in May from an April low… but higher rates could bring them down
- More mortgages were issued to home buyers in May than in April
- Experts say rising mortgage rates will dampen the market going forward
- The current rate for a two-year fixed mortgage is now 6.3%, according to MoneyFacts
The number of loans approved for home purchases in May rose slightly from the record low for mortgage purchases in April, despite rising interest rates.
According to the Bank of England, the total rose 3 percent from 49,000 in April to 50,500 in May.
Approvals for remortgages saw an increase from 32,500 to 33,600 in the same period, but these figures do not take into account higher rates in the wake of the Bank of England’s most recent rate hike.
Mortgage approvals rose in May as buyers sought to close deals before interest rates rose further
The average interest rate on new mortgages rose by 0.10 percent to 4.56 percent in May, according to the figures.
But that will now have increased further. According to Moneyfacts, the average two-year fixed-rate mortgage rose from 5.49 percent on June 1 to 6.30 percent on June 29.
Lucian Cook, head of residential research at broker Savills, said: ‘It is worth remembering that the marginal improvement in mortgage approvals for home purchases in May came in the run-up to the recent debt repricing.
Nevertheless, it reflects a market increasingly focused on – and dependent on – buyers rich in cash and stocks.
The June figure will be more telling given the timeline of turbulence in the mortgage markets. We would expect that there will be more attention for remortgages at that time.’
Last week, the Bank of England raised its key interest rate to 5 percent – the highest level since 2008 – as it continues to try to tackle stubbornly high inflation.
As the cost of borrowing has risen, lenders have continued to raise their mortgage rates in anticipation of further increases.
Up: Mortgage rates have risen sharply over the past month as inflation has kept interest rates high
At the same time, house price growth continues to slow as mortgage pressure dampens the market.
More than two-fifths of sellers (42 percent) will accept offers more than 5 percent below the asking price — a nearly threefold increase from the 14 percent that did in June last year, according to Zoopla.
Tomer Aboody, director of real estate lender MT Finance, says: ‘As rates continue to rise, buyers and mortgage holders are looking for relatively reasonable deals they’ve gotten in previous weeks or at the moment before losing them.
‘This is reflected in higher acceptance figures for buyers and mortgage lenders.
“As approvals rise, the net flow of household deposits declined significantly compared to April, underlining how households are feeling the pressure related to the higher cost of living.”
In May, households took out a net £4.6bn from banks and building societies – the highest level of household take-downs ever.
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David Hollingworth is This is Money’s mortgage expert and a broker with L&C Mortgages – one of the UK’s leading specialists.
He’s ready to answer your home loan questions, whether you’re buying your first home, trying to get a new mortgage amid the rate chaos, or planning further ahead.
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