"May’s uptick in mortgage approvals bucks the downward trend we’ve seen throughout the year so far. The gradual easing of interest rates could be helping to boost confidence and demand amongst mortgage borrowers."
- Karim Haji - KPMG
Net borrowing of mortgage debt by individuals increased by £2.8 billion in May, bringing the total to £2.1 billion, according to the latest Money and Credit statistics released by the Bank of England. This marks a reversal from April, when borrowing had fallen sharply by £13.8 billion to -£0.8 billion.
The annual growth rate for net mortgage lending rose marginally from 2.5% in April to 2.6% in May. Gross mortgage lending also saw an increase, reaching £20.4 billion compared to £16.9 billion the previous month. In contrast, gross repayments declined slightly to £17.6 billion from £18.2 billion.
Net mortgage approvals for house purchases, which serve as a key indicator of future borrowing, rose by 2,400 to 63,000 in May. This is the first monthly increase recorded since December 2024. Approvals for remortgaging with a different lender also increased, climbing by 6,200 to 41,500 – the highest monthly rise since February 2024, when approvals grew by 6,600.
The ‘effective’ interest rate on newly drawn mortgages decreased slightly, falling to 4.47% in May from 4.49% in April. However, the average rate on the outstanding stock of mortgages ticked up to 3.87% from 3.86%.
“It is incredibly positive news to see an increased number of mortgage applications approved,” said Nathan Emerson, CEO of Propertymark. “It is one of the loudest signals of them all regarding consumer affordability, and it is also a massive vote of confidence from lenders in the longer-term prospects of the economy, too."
“As we head into the summer months, we have witnessed on average the number of viewings per property available see an uplift of around 30% compared to the previous month. On top of this, we have also seen the UK Government make a pledge to create a National Housing Bank which could bring significant investment to help build 500,000 new homes, enabling a potential greater degree of flexibility for those who aspire to buy.”
Karim Haji, global and UK head of financial services at KPMG, commented, “May’s uptick in mortgage approvals bucks the downward trend we’ve seen throughout the year so far. The gradual easing of interest rates could be helping to boost confidence and demand amongst mortgage borrowers.
“The cost of living remains high, but a drop in consumer borrowing in May signals that rising incomes are starting to feed through to the cost of day-to-day expenses.
“Borrowers may also be awaiting further movement on the Bank of England’s base rate before deciding to take out more credit, although falling mortgage rates may help increase confidence and appetite. Default rates remain high, despite the interest rate cut last month, and it is critical that lenders remain ready to support customers who are struggling to pay their bills.
“With the economic outlook remaining uncertain, lenders will need to be alive to the financial struggles of their customers and be ready to step in to support them both now and in the months ahead.”
Melanie Spencer, sales and growth lead at Target Group, part of Tech Mahindra, noted, “After a few quiet months, it’s good to see approvals rising. That will help lighten the shadow these statistics have been casting over the market’s outlook.
“It’s too soon for optimism, though. Yes, some lenders have started loosening criteria a little. But recently, we have seen inflation, including owner-occupied housing costs, the so-called CPIH, hitting 4%. And the RPI, the Retail Prices Index, which sets the costs of many business contracts and the charges on the index-linked portion of our national debt, has risen to 4.3%. On any rational assessment, inflation is running at double the target rate.
"That may well lead to some debate at the Bank about increasing interest rates or, at the very least, making fewer cuts, later. That will mean limited relief for borrowers in the future.”
