According to the latest figures from the Bank of England, net residential mortgage approvals dropped for the third consecutive month, declining by 3,100 to 60,500.
In contrast, remortgaging activity picked up, with approvals for switching to a new lender rising by 1,600 to 35,300 in April, following a similar increase the previous month, according to the BoE’s Money and Credit report.
Lucian Cook, head of residential research at Savills, commented: “Lending declined in April following a strong March, largely driven by first-time buyers rushing to meet the stamp duty deadline at the end of the previous month.
“However, the slowdown also reflects some ongoing caution among prospective buyers given the economic backdrop, which has caused the housing market recovery to lose a little momentum in recent months and annual price growth to moderate.
“Looking ahead, the outlook is more positive, with data from TwentyCI suggesting that market activity in May was 5% up on 12 months previous. And expected interest rate cuts and more flexible lending rules are likely to broaden the buyer base and boost spending power over the medium to long term.”
Uncertainty in the wider economy is likely to have played a part in the softer mortgage approval data, a result of inflationary pressures in the domestic economy in ‘Awful April’ when households were hit with a raft of bill hikes and the sharp increase in employment costs for businesses, according to Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.
She said: “While higher stamp duty costs pose a challenge for buyers, particularly first-timers who need to factor in a bigger property tax bill upfront, the housing market remains resilient with prices rising 0.5% in May on the month, according to the latest Nationwide House Price Index. Mortgage rates are also easing, thanks to four interest rate cuts from the Bank of England since August last year. This is evident in the effective rate on newly drawn mortgages, which fell slightly to 4.49% in April.
“Whether May’s rate cut will be followed with another cut in June remains unclear though as persistent inflation and the sharp rise in the minimum wage may encourage the BoE to stick with the status quo. While easing mortgage rates may be improving the affordability position for some, many borrowers are still contending with higher repayment costs, particularly anyone emerging from ultra-cheap fixed-rate deals secured when interest rates were at rock bottom. This was evident in the rate for the outstanding stock of mortgages, which rose to 3.86% in April from 3.84% the previous month.”
Richard Donnell, executive director at Zoopla, believes April’s drop n approvals is owed in part to the timing of Easter.
“A slowdown in demand for mortgages in April reflects the impact of a late Easter,” he said. “We expect mortgage data for May to increase in line with a pick-up in new sales being agreed, which are running at their highest level for four years.”
Gross lending tumbled to £16.9bn in April from £39.9bn the previous month — the steepest monthly decline since June 2021. Gross repayments also fell, to £18.4bn from £23.7bn.
Nathan Emerson, CEO of Propertymark, commented: “As the global economy continues find a new balance, many people are acutely aware there could be challenges ahead regarding overall affordability when approaching the buying and selling process. We are starting to see more competitive mortgage deals from key lenders, but the eligibility criteria in some cases remains extremely rigid and limited.
“Many people may have also been temporarily deterred from potentially moving house following Stamp Duty threshold hikes across England and Northern Ireland from the start of April.
“When the conditions are right, it would be encouraging to see further base rate cuts to help spur on a ‘bidding war’ among the lenders attract those who are aspiring to take their next step onto the housing ladder and are holding out for more competitive mortgage deals.”
