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Mortgage Lending (Jun.)

Slip in mortgage approvals in June a sign of the slump to come

  • Mortgage approvals slipped back to below 2019 levels in June supporting our view that higher interest rates will cause housing market activity to slump over the next two years. Indeed, further rises in Bank Rate and narrow interest margins on mortgage lending at present suggest that mortgage rates will continue to climb, causing demand to deteriorate further over the coming months.
  • After holding steady in May, mortgage approvals for house purchase slipped back from 65,681 in May to 63,276 in June. (See Table 1.) That took them to the lowest level since June 2020, when the housing market was recovering from the shut down at the start of the pandemic. Moreover, it leaves approvals below the pre-pandemic average of 66,000 a month. (See Chart 1.) We suspect that’s an early sign of a slump in housing market activity ahead.
  • Approvals of remortgages also fell as rising mortgage rates reduced the scope for existing borrowers lock into a better rate. Indeed, the average effective interest rate on mortgages advanced rose by 20bps to 2.15% in June, up from 1.5% last autumn. Quoted rates, which lead the effective rate by a few months, now range from 2.9% on a 60% LTV loan to 3.5% on a 95% LTV loan, so the effective rate will rise further.
  • The downward trend in mortgage approvals since October 2020 has translated to a slowdown in net mortgage lending. While the £5.3bn increase in mortgage debt in June was larger than the average of £4.3bn in the 12 months leading up to the pandemic, it leaves lending in the calendar YTD down 26% y/y.
  • The continued softening of the lending data indicates that transactions, which slipped to a 7-month low in June, will continue to fall. We expect the drag on demand from the ongoing rise in mortgage rates will cause mortgage approvals and transactions to slip to their lowest level since 2012 next year.

Chart 1: Mortgage Approvals (000s)

chart001-347.png

Sources: Refinitiv, Capital Economics

Table 1: Bank of England Mortgage Lending – Key Figures

2021

2022

Seasonally adjusted

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Value of loans approved £bn

26.1

25.3

24.8

25.0

24.7

25.5

26.3

27.1

27.5

27.8

26.7

26.7

26.0

%y/y

62.1

12.7

-3.3

-7.1

-11.3

-12.6

-8.2

-1.0

7.5

12.4

0.8

-1.2

-0.4

Approvals for House purchases 000s

80.6

76.5

74.5

72.6

67.8

67.7

70.3

73.2

70.1

69.4

65.9

65.7

63.7

%m/m

-6.0

-5.2

-2.6

-2.6

-6.6

-0.2

3.9

4.1

-4.2

-1.0

-5.1

-0.3

-3.0

%y/y

97.9

11.0

-15.0

-22.4

-31.8

-35.6

-29.9

-23.2

-18.4

-14.8

-22.9

-23.4

-21.0

Source: Bank of England


Andrew Wishart, Senior Economist, 020 7808 4062, andrew.wishart@capitaleconomics.com