"Gross mortgage lending is set to remain low for a while yet."
While mortgage borrowing increased slightly in May, approvals fell back further to a new record low, according to the latest Money and Credit statistics from the Bank of England.
Its data shows that the mortgage market "remained weak in May" in comparison to pre-Covid. Mortgage borrowing totalled £1.2 billion, slightly higher than in April but weak compared to an average of £4.1 billion in the six months to February 2020. The Bank says the increase on the month reflected more new borrowing by households, rather than lower repayments.
In contrast to the increase in mortgage borrowing, the number of mortgage approvals for house purchase fell to a new series low in May, of 9,300. This was almost 90% below the February level and around a third of their trough during the financial crisis in 2008.
Approvals for remortgaging with a different lender fell to 30,400, 42% lower than in February.
Hina Bhudia, partner at Knight Frank Finance, commented: "The Bank of England data reveals the unprecedented impact of the property market shut down when many surveyors were unable to visit properties to conduct valuations in-person.
"Leading indicators suggest lending has been picking up since May, but it's clear there is still a long way to go before many borrowers experience anything resembling pre-pandemic conditions.
"A two-tier mortgage market has emerged in recent weeks as lenders have become more averse to risk, and have largely withdrawn from higher loan-to-value lending ahead of the wind up of government support schemes this autumn.
"This means the market remains particularly challenging for first-time-buyers, the self employed, or anybody that relies heavily on commission or bonuses to top up their income.
"The picture is completely different for borrowers with larger deposits of 15% or more. They have much wider access to finance at historically low interest rates, and have underpinned a surge in activity as the property market bounced back to life."
Steve Seal, managing director at Bluestone Mortgages, added: “Gross mortgage lending is set to remain low for a while yet. Whilst last month’s housing market news will help to boost consumer sentiment in the short-term, the long-term picture will be very different.
“Those working in sectors such as hospitality and retail have been some of the hardest hit during the Covid-19 pandemic. Across the country, huge numbers of people have been furloughed, made redundant, and even unemployed. As such, the likelihood that these consumers will need specialist support when it comes to securing lending in the future has become even greater.
“Advisers will continue to play a crucial role here. But in order to ensure they are able to direct borrowers to a financial solution that best aligns with their circumstances, they will need the support of lenders. The specialist market in particular is key. This will ensure that advisers are well-equipped to make clients aware of the specialist support that is available, both as the crisis continues and once it subsides.”